Dow Falls 157 on Deepening Global Woes

Deepening worries about the global economy’s prospects for growth in 1998 sent world stock markets tumbling again Wednesday, pushing some close to their lows reached in the late-October market plunge.

On Wall Street, the Dow Jones industrial average sank 157.41 points, or 2.1%, to 7,401.32, as heavy selling pummeled industrial, technology and banking shares--all of which are viewed as particularly vulnerable to the spreading Asian economic “flu.”

Another steep decline Wednesday in many Asian markets, including Tokyo and Hong Kong, raised fresh concerns that the widespread devaluation of currencies, stocks and real estate values in Asia since June will drastically slow economic growth in that region soon.

What’s more, Brazil’s stock market crumbled Wednesday, with the country’s key share index losing 10.2%, as investors bailed out of stocks in the wake of the government’s new austerity plan--which was aimed at stabilizing markets by seeking to protect Brazil’s currency from devaluation.

Although the plan may indeed protect the Brazilian real’s value, it is almost certain to slash the country’s economic growth rate in 1998. That, in turn, will dampen growth across Latin America, analysts said.

Combined with Asia’s woes, Latin America’s troubles will assure weaker order growth, and thus weaker earnings, for many U.S. exporters next year, experts said.

The U.S. stock market’s renewed slide “is saying that earnings are going to be a problem next year, and I think that’s right,” said David Shulman, strategist at Salomon Bros. in New York.

Among companies heavily dependent on foreign business, machinery giant Caterpillar plunged $3.44 to $44.75, and semiconductor maker Texas Instruments slumped $12.50 to $93.75.

Some Wall Street pros say Wednesday’s U.S. market decline--the worst one-day loss since the Oct. 27 mini-crash, when the Dow tumbled 554 points, or 7.2%--reflects a change in thinking on the part of investors who have until now been largely unruffled by troubles overseas.

“I think there’s been much too much complacency” about the potential effects of global market and economic turmoil on the U.S. economy, said Charles Pradilla, strategist at Cowen & Co. in New York.

Falling stocks outnumbered winners 2,380 to 664 on the New York Stock Exchange in heavy trading. The Nasdaq composite index slid 2.7% to 1,541.72, and the Russell 2,000 index of smaller stocks lost 2.3%.

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Stocks fell even as the Federal Reserve Board met and decided to leave short-term interest rates alone. Although Fed chief Alan Greenspan in recent months has warned that the U.S. economy’s strength could force the central bank to tighten credit, the Fed was widely expected to do nothing on Wednesday--because a rate boost could further unsettle global financial markets.

Indeed, while the Fed still appears concerned about higher inflation down the road, many investors’ fear today is of global deflation--in corporate profits, stock prices and other asset values.

Those concerns helped fuel the Oct. 27 mini-crash. In the days that followed, however, many world markets, including the U.S. market, rebounded sharply as bargain hunters swooped in, on the belief that stocks’ losses were overstating the case for a global economic slowdown.

But as the Asian flu has spread to Latin America, worries about the potential effect on corporate earnings growth have worsened.

Although the Dow remains well above its low of 7,161.15 on Oct. 27, many other markets on Wednesday fell to levels that threaten to test the lows set in late October.

Hong Kong’s Hang Seng share index slumped 4% to 9,607 on Wednesday, its lowest close since 9,059 on Oct. 28.

Mexico’s main stock index dropped 192.34 points, or 4.2%, to 4,334.79 on Wednesday, pulled down by Brazil’s sell-off. Wednesday’s close is just 1.7% above the Oct. 27 low of 4,263.89, when the market fell 13.3%.

“Testing those lows would be a classic pattern” for stock prices after a steep decline, then rebound, Pradilla said. If markets hold above the October lows, it could indicate that prices are stabilizing. A break below the October lows could herald a major new decline.

But even if U.S. stocks hold at current levels, the damage already done has been much worse than the Dow index reveals, some analysts say. Although the Dow now is off 10.4% from its record high set in August, 23 of the index’s 30 stocks have declined by more than that amount from their individual peaks. More than half the Dow stocks are down 15% or more.

The index overall has been supported in part by relative strength in some of its highest-priced shares, such as J.P. Morgan and Walt Disney. As a price-weighted index, the highest-priced shares have a greater effect on the index.

The largest declines within the Dow have occurred in industrial and tech issues. Some analysts expect the selling in those stocks to worsen as the extent of the global economy’s slowdown becomes clearer, and analysts begin to shave earnings estimates.

“You’re going to see darker days for cyclical stocks,” said Thomas McManus, strategist at NatWest Securities in New York.

Many economists, however, still insist that foreign troubles won’t have more than a modest impact on U.S. economic growth in 1998. As long as the U.S. consumer continues to spend money, the American economy’s general health can’t deteriorate significantly, optimists say.

What’s more, they note that deflation worries are pushing long-term bond yields lower--which should be a plus for the economy and stock prices eventually.

The 30-year Treasury bond yield sank to 6.10% on Wednesday from 6.14% on Monday. It was at 6.4% as recently as September.

Among Wednesday’s highlights:

* Industrial losers included Deere, down $2.56 to $50.44; Ford, off $1.94 to $43.19; and GE, down $1.63 to $65.75.

* In the tech sector, IBM sank $2.38 to $96.63, Dell lost $4.19 to $72 and 3Com dove $4.25 to $30.88. Brokerage Goldman Sachs helped spur selling by warning that global capital spending will slow in 1998 because of economic turmoil.

* Bank stocks fell on worries that credit problems with overseas borrowers--and with Japanese banks--may mushroom. Chase Manhattan fell $5.63 to $106.75; Bankers Trust lost $4 to $110.13.

* On the plus side, investors continued to seek out stocks of companies that are largely dependent on the U.S. economy, with little foreign exposure. Winners included some utilities, such as American Electric Power, up 31 cents to $47.44, and retailers such as Wal-Mart, up 81 cents to $37.94.

Market Roundup, D7

* MORE TROUBLE IN JAPAN: Stocks slump as Japanese banks’ money costs rise. D3

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Lower Again

Economic concerns sent stocks slumping again worldwide on Wednesday, deepening the declines from markets’ 1997 peaks. A sampling:

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Country (index) Wed. drop Drop from ’97 high Brazil (Bovespa) --10.2% --44.1% Mexico (Bolsa) --4.2 --19.7 Hong Kong (Hang Seng) --4.0 --42.8 U.S. (Nasdaq composite) --2.7 --11.7 Japan (Nikkei-225) --2.7 --26.2 U.S. (Dow 30) --2.1 --10.4 U.S. (S&P; 500) --1.9 --7.8 Germany (DAX-30) --1.9 --18.0

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Source: Times research

Bear Tracks?

Although the Dow Jones industrial average is off a relatively modest 10.4% from its record high set on Aug. 6, most of its 30 component stocks have fared much worse. The Dow, a price-weighted index, is being held up by strength in some of its highest-priced shares. Declines in the Dow 30 from their 1997 highs:

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1997 Wednesday Percentage Stock high close change Eastman Kodak $94.75 $61.56 --35% Sears 65.25 45.38 --30 Caterpillar 61.63 44.75 --27 AlliedSignal 47.13 34.88 --26 Alcoa 89.63 66.06 --26 Boeing 60.50 46.44 --23 International Paper 61.00 46.81 --23 Union Carbide 56.81 43.94 --23 United Technologies 88.94 69.50 --22 Coca-Cola 72.63 56.44 --22 Merck 108.19 86.94 --20 Hewlett-Packard 72.94 58.75 --19 Philip Morris 48.13 40.38 --16 Dupont 69.75 59.00 --15 McDonald’s 54.88 46.38 --15 Goodyear 71.25 60.69 --15 General Motors 72.44 62.81 --13 General Electric 74.63 65.75 --12 Exxon 67.25 58.88 --12 Johnson & Johnson 66.50 58.38 --12 IBM 109.44 96.63 --12 American Express 86.56 77.38 --11 J.P. Morgan 122.81 109.38 --11 3M 105.50 95.44 --10 Travelers 76.44 68.94 --10 AT&T; 50.94 46.75 --8 Chevron 89.19 81.88 --8 Procter & Gamble 77.56 71.69 --8 Walt Disney 87.81 83.06 --5 Wal-Mart 39.56 37.94 --4 Dow average 8,259.31 7,401.32 --10%

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Source: Times research