Wall Street Bulls Aren’t Easily Cowed The Dow Jones Average Has Recovered Its Oct. 27 Losses

Say whatever else you want about investors in the U.S. stock market, they aren’t easily intimidated.

Scarcely more than a week after the Dow Jones industrial average suffered its largest point drop ever on Monday, Oct. 27, the best known of all the Wall Street indicators recovered all the ground it lost that day.

On Wednesday afternoon, the Dow rose to 7,766, up about 77 points from Tuesday’s close and more than 600 points higher than its 7,161 reading at the close of business on Blue Monday. The 554-point loss in that tumultuous session had been completely recouped.

By market’s close, the Dow had faded a bit, but still was up 3.44 at 7,692.57, about 23 points shy of the level it held before last week’s plunge.

If the markets didn’t spend very long transmitting the message of their October selloff, analysts say that doesn’t mean it can just as quickly be forgotten.

In focusing on the problems facing many countries in Asia, the market drop raised the question of how long worldwide economic growth can continue without some significant disruptions. Once confidence falters, the markets vividly demonstrated, the impact can be transmitted to investors the world over with lightning speed.

“I think there’s a lot we don’t understand yet about recent events in Asia,” says Greg Smith at Prudential Securities in his current bulletin to the firm’s clients. “Investors appear fairly certain that the recent developments will have a relatively minor impact on economies around the world. Hopefully, that is the case - but it’s by no means clear to me that it is.”

The way many observers saw it, the October drop accomplished some positive things for the U.S. market, by reducing some of the extremes of bull-market enthusiasm and presumably moving stocks out of the accounts of investors with weak conviction into stronger hands.

Even with its speedy recovery from last week’s losses and its more than 19 percent rise for the year, the Dow remains 567 points below its Aug. 6 record of 8,259.31.

“We believed some kind of brakes needed to be applied to the market,” note analysts Michael Moe and Michael Armstrong at NationsBanc Montgomery Securities Inc. in San Francisco. “Too many stocks had gone up too far too fast, and investor sentiment was becoming bubbly.”

By many people’s measurements, stocks went from very overvalued to roughly fair value, or only slightly overpriced, in relation to current and expected future corporate earnings. But with its subsequent rally, the market has reverted close to its former levels.

“Over the past few years, the individual investor on Main Street has learned that selling panics by traders on Wall Street are great buying opportunities,” says Edward Yardeni, chief economist at Deutsche Morgan Grenfell Inc.

“However, I believe that sometime between right now and Jan. 1, 2000, there will be a significant selloff, and it won’t be a buying opportunity. In this scenario, the brave hearts could succumb to the pressure and belatedly join, and exacerbate the selling panic.”

Some of the stocks that moved substantially or traded heavily Wednesday:

NYSE

Consolidated Stores, up 4-5/16 at 45-7/16.

MacFrugal’s Bargains Close-Outs, up 3-1/4 at 40-13/16.

Consolidated, the nation’s largest close-out retailer, agreed to buy MacFrugal’s, a Los Angeles-based discount chain, for about $995 million in stock. Consolidated, based in Columbus, Ohio, is to swap between 0.88 and 1.00 share of its stock for each MacFrugal’s share.

NASDAQ

Cisco Systems, up 2-3/16 at 85-7/16.

The biggest maker of computer networking equipment reported an 86 percent jump in profits for its first quarter ended Oct. 25, edging Wall Street forecasts. Cisco, based in San Jose, Calif., also said late Tuesday its board has authorized a 3-for-2 stock split to take effect Dec. 16.

Oxford Health Plans, down 1-7/16 at 23-7/8.

The health maintenance organization lost $78.1 million in the third quarter, worse than the $68.5 million to $72.7 million that Oxford estimated last week, prompting a 59 percent plunge in its stock.

AMEX

Lynch, down 3-1/2 at 80-1/2.

The stock fell for a second session after the company warned that its fourth-quarter results will come in below forecasts due to disappointing results at Lynch Machinery and Spinnaker Industries.