Wall Street staged one of the most dramatic rebounds in its history Tuesday as the Dow Jones industrial average gained 337.17 points, its largest point increase ever.
Stock trading volume handily blew past all records and severely taxed computerized trading systems around the United States.
The Dow’s gain - in percentage terms, a modest 4.7 percent - took the widely watched index of 30 blue-chip stocks to 7,498.32 points and erased much of Monday’s record 554-point rout.
Wall Street’s recovery came at the end of a global trading day when most of the world’s markets had been buckled by heavy selling pressure. The U.S. markets’ resilience may halt, at least for the moment, the wave of panic selling that began last week in Asia and has been reverberating in world markets since.
The abrupt turnaround in sentiment in the United States sparked a relief rally overseas today. At the midday break in Hong Kong, the Hang Seng blue-chip index stood at 10,572.31 points, up 1,512.42 points or 16.69 percent. In Tokyo, the benchmark Nikkei Stock Average jumped 544.35 points, or 3.34 percent, closing the day’s trading at 16,857.04.
As Americans woke Tuesday, television and radio carried ominous news that Hong Kong’s stock market was down nearly 14 percent, Tokyo’s was down 4.3 percent and London’s was down as much as 9 percent.
So great was the apprehension that Wall Street would see a similar bloodbath that when the opening bell sounded at 9:30 a.m., there was a massive trading imbalance. So many people were trying to sell and so few wanting to buy that trading in many stocks couldn’t open. The Dow industrials plunged 189 points, falling through the 7,000 mark.
“The opening wasn’t as bad as I thought it would be, it (was) worse,” said Bob Fagenson, a 27-year member of the New York Stock Exchange.
Then, at 10:30 a.m., IBM announced that it would spend as much as $3.5 billion to buy back its own stock, which had fallen 15 percent in price in recent days. The confident move by the giant computer maker - backed by a chorus of Wall Street strategists recommending that clients get back into stocks - firmed the tone of the market.
Almost magically, the psychology of the market shifted, and buy orders from big institutions and small investors flooded into the exchanges. By 11, stock prices had recovered their initial losses and began a steep and steady climb that continued through the day as pension and mutual fund managers moved their money out of government bonds, where they had parked it, and back into stocks.
“The market turned on a dime,” Fagenson said. “We went from having three sellers to four buyers within minutes.”
“The IBM announcement caused people to think that maybe the price of stocks had been pushed down too far,” said Elizabeth Mackay, chief investment strategist at Bear, Stearns & Co. “It helped put things back in perspective.”
It also helped IBM stock, which closed the day up more than 10 percent at $99.37-1/2.
IBM’s announcement prompted other companies to announce their own stock buybacks, among them BellSouth Corp., the Knight-Ridder Inc. newspaper chain and software maker Storage Technology Corp.
Helping to firm the market were calls such as those made by Abby Joseph Cohen, a strategist with Goldman, Sachs & Co. She reiterated her positive outlook for U.S. stock prices before trading opened, and also increased the equity portion of her model investment portfolio to 65 percent from 60 percent. Other strategists followed suit.
Tuesday’s buying spree did not touch all shares, as a full 1,328 stocks were down for the day while 1,785 stocks rose. But most stock market indexes rose, with the Standard & Poor’s 500-stock index up 43 points to 919, a gain of 24 percent for the year. The Nasdaq composite index rose to 1,600, up 68 points, and the Russell 2000 index gained 9 points to 429.89.
Prices of U.S. Treasury securities slid for the first day since the worldwide selling panic began last Thursday. The yield, which moves in the opposite direction from the price, of the Treasury’s bellwether 30-year bond rose to 6.28 percent as investors sold bonds to buy stocks.
Tuesday’s huge volume - with more 1.2 billion shares exchanged on the NYSE and a total of about 2.5 billion trading hands on the major exchanges - shattered records set 24 hours before. This surge was accommodated thanks to new computer systems, the Internet, and automated 800 numbers at brokerages and mutual funds.
The market rebound brought sighs of relief from regulators and economic policymakers in Washington, who had arrived early at their offices Tuesday to consider what actions they might take if the global sell-off swamped Wall Street again.
On the recommendation of his advisers, President Clinton briefly interrupted a speech he was giving on education Tuesday morning in Chicago to try to bolster the market by reaffirming his faith in the strength and soundness of the American economy.
The Labor Department reinforced that message with a report that wages and benefits for American workers rose 0.8 percent in the three months ending in September, the latest proof that inflation remains under control.
That message of “sound economic fundamentals” will no doubt be amplified Wednesday morning when Federal Reserve Chairman Alan Greenspan testifies before Congress. In recent months, Greenspan has suggested publicly that he thought the stock market was overvalued and could use a good downward correction. Now that it has happened, analysts said, Greenspan and his Fed colleagues won’t have to raise interest rates any time soon to cool growth.
2 Graphics: 1. While others fall, Dow rebounds 2. Dow recovers lost ground