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Dow takes historic tumble
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January 9, 1998: 5:39 p.m. ET
Stocks hit hard as investors worry about Asian impact on U.S. earnings
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NEW YORK (CNNfn) - Blue chips fell more than 200 points Friday, capping off one of the worst weeks in Wall Street history, as investors worried about a new escalation in Asia's financial troubles.
Turmoil in Far Eastern markets, led by Indonesia, fueled fears that earnings of U.S. corporations would be hit by the ripple effects of the Asian crisis.
The Dow Jones industrial average suffered its fourth worst one-day point loss, tumbling 222.20 points, or 2.85 percent, to 7,580.42. The blue chip index also scored the biggest weekly point loss in its history, finishing the week 384.62 points, or 4.83 percent, lower. The Dow is down 4.15 percent on the year.
On the New York Stock Exchange, declining issues sharply outnumbered advances, 2,511 to 558, as 753 million shares changed hands.
Broader markets were battered too. The Nasdaq Composite suffered its second largest one-day point loss, shedding 52.32 points, or 3.36 percent, to 1,503.22. The technology-laden index ended the week down 4.95 percent and is now down 4.27 percent on the year.
The broader S&P 500 index lost 28.35, or 2.97 percent, to 927.69, ending the week down 4.86 percent. The S&P 500 is down 4.40 percent on the year.
"It's this external factor of what is Southeast Asia going to do to our markets," said Roy Blumberg, chief market strategist at Josephthal & Co. "I don't really think people have been able to quantify it. If they could quantify it more, they'd probably be more comfortable. The unknown is the scariest." (140 K WAV) or (140K AIFF)
Blumberg said despite Friday's severe sell-off, the market's performance next week is most likely to be determined by events in Asia over the weekend. (260K WAV) or (260K AIFF)
Bonds balk at jobs report
The stock market's weakness fueled a rally in bonds after several swings up and down following a surprisingly strong December U.S. employment report.
Although the Labor Department reported that the unemployment rate rose to 4.7 percent last month from November's 24-year low of 4.6 percent, figures also showed the economy churned up 370,000 new non-farm jobs, beating Wall Street expectations of about a 209,000 gain.
A flight to quality amid the poor performance of world stock markets helped increase bullish sentiment in bonds. The benchmark 30-year Treasury bond surged 23/32 in price for a drop in the yield to 5.69 percent.
"Growth is likely to be lower in '98 than it was in '97. So, to re-balance monetary policy, you're going to have to lower interest rates," said Matt Alexy, chief market strategist at CS First Boston. "The question is by how much? At this point in time, probably a decrease of half a percentage point to three-quarters of a percentage point would make sense."
In currency markets, the dollar gave up some ground against the German mark but finished higher against the Japanese yen.
More earnings warnings
Among individual stocks, Friday brought more warnings of disappointing fourth-quarter earnings.
Adaptec (ADPT), which makes computer subsystems, software and chips, late Thursday warned that its fiscal third-quarter earnings would come in well below market expectations.
The company said it would have operating profits of 35 to 40 cents a share, or 21 to 23 cents after charges -- sharply below Wall Street's predictions of 56 cents a share.
Following the announcement, Bear Stearns and Morgan Stanley Dean Witter downgraded the stock, which tumbled 40 percent, losing 14-3/8 to 21-9/16. Adaptec topped the Nasdaq's most actively traded list.
The rest of the technology sector tanked in sympathy, with Microsoft (MSFT) losing 3-1/2 to 127, Dell (DELL) down 3 to 83-3/16, Compaq (CPQ) off 2-3/8 to 56-15/16, Oracle (ORCL) down 1-9/16 to 18-3/4 and Intel (INTC) falling 2-7/16 to 71-7/8. Separately, published reports said the Federal Trade Commission is looking into Intel's $700 million settlement of a patent-infringement lawsuit filed by rival Digital Equipment (DEC).
The technology meltdown triggered late selling in the rest of the market. Among the victims, banking shares succumbed to losses after holding their ground through most of the day. Citicorp (CCI) lost 2-3/4 to 115, Chase Manhattan (CMB) tumbled 2-5/16 to 101-7/8, and Dow component J.P. Morgan (JPM) lost 2-5/16 to 105-3/4.
Elsewhere in the market, Alcoa (AA), the world's largest aluminum producer, extended Thursday's plunge, shedding another 1-3/4 to 66-1/4 after the company reported fourth-quarter profits that missed expectations. Alcoa lost 3 on Thursday.
Shares of Empi Inc. (EMPI) also suffered, losing 1-5/8 to 18-1/2, even though the company reported fourth-quarter earnings of 35 cents a share, up from year-earlier results of 30 cents a share. Empi develops noninvasive biomedical devices for the medical-rehabilitation and incontinence-treatment markets.
Meanwhile, oil companies took another hit after several day of declines amid dropping world petroleum prices. Exxon (XON) lost 1-7/16 to 58-1/8, while Chevron (CHV) fell 2-3/8 to 71-1/8. Declines in Exxon and Chevron -- both Dow components -- helped fuel the Dow's tumble.
Cheaper fuel failed to ignite strength in the transportation sector, where losses in several major components caused a 96.28-point drop in the Dow transports index to 3,194.36. Among the culprits: AMR (AMR), the parent of American Airlines, shed 5-7/8 to 125, Delta Air Lines (DAL) lost 2-9/16 to 114-7/16, and UAL (UAL), the parent of United Airlines, fell 2-9/16 to 88-13/16.
Also in the news, leading fiberglass maker Owens Corning (OWC) fell 1-5/8 to 32 after announcing plans to cut 2,200 jobs in a reorganization plan that will cost $250 million in pre-tax charges. The company also said continuing price pressures would result in 1997 annual earnings below expectations.
Next week is likely to bring even more earnings excitement into the market, with several high profile companies due to report earnings. Among those expected to release results are technology giants Apple Computer (AAPL) and Intel (INTC).
--by staff writer Malina Poshtova Zang
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