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Stock Market Volatility Strikes Fear Into Hearts of Investors

By Thomas S. Mulligan
Los Angeles Times
NEW YORK

Economists, investment strategists and even individual investors count on the financial markets to send intelligible signals about the direction of the broader economy.

But what is the Dow Jones industrial average trying to say when it plunges nearly 300 points in a couple of hours, then rebounds to finish the day off less than 10 points - which is exactly what happened Thursday?

The same question might be asked of the recently mighty U.S. dollar, which lost a nearly unprecedented 15 percent of its value against the Japanese yen in a day and a half of chaotic trading before regaining some ground Thursday afternoon.

The jaw-dropping volatility in global stock, bond and currency markets in recent days, a worsening of the wild swings that have dominated markets since summer, has even veteran investors shaking their heads in awe.

"This is as wild and nutty as it gets," said Stan Weinstein, editor and publisher of The Professional Tape Reader market newsletter in Hollywood, Fla. "The last few days have been awful."

The deeper question - and worry - is whether this extreme volatility is the harbinger of a global economic recession in 1999, or just a relatively brief market phase that will pass without dragging the United States and Europe into the malaise now gripping Asia.

For policy-makers and investors alike, there is something of a cause-vs.-effect issue now: Are the markets signaling that deeper economic problems are brewing? Or will the markets' swings precipitate economic problems that otherwise would not have developed?

While it's well understood that the financial markets don't necessarily mirror the real economy - not on a day-to-day basis, anyway - there is increasing worry that the fear and frenzy among traders will infect consumer and business confidence and do lasting economic damage.

Meanwhile, more cautious investors are just trying to get out of the way, and their lack of bidding also can exacerbate the volatility.