Dow Comes To Grips With Reality

The Dow Jones industrial average, which soared 1,900 points in four months, gave up 247.37 points Friday as it spiraled to its second-worst point drop ever.

The drop, which sent the Dow to 7,694.66, wiped out last month’s exhilaration over topping the 8,000 mark and every recorded plunge except the 508-point Black Monday crash of Oct. 19, 1987.

The sell-off capped a dizzying seven-day decline of 565 points, or almost 7 percent, from the rarefied height of 8,259.31 reached Aug. 6.

But at 3.1 percent, Friday’s decline - prompted largely by computer selling programs and fears that the bull market has overvalued stocks - pales in comparison with the 22.6 percent free fall in 1987. Investors viewed the plunge as the correction - or part of the correction - many have been waiting for.

“This is a bit of a pause after a hell of a run,” said William M. Lefevre, senior market analyst at Ehrenkrantz King Nussbaum.

Traders are worried about inflation, interest rates and the outlook for corporate earnings. But they also were aware that even with the sell-off, the Dow is up more than 19 percent this year, double what many analysts had been expecting for all of 1997.

In yet another day of gyrations, the Dow Jones industrial average stumbled badly in the final 30 minutes of trading Friday, for the lowest close since June 30.

The sell-off extended to 6.8 percent the retreat from the record set last week and marked the steepest slide since the Dow plunged almost 10 percent in March and early April before returning to uncharted heights.

Stocks were led lower as interest rates rose in the bond market. The decline on Wall Street was aggravated by computer-driven selling typical of “double witching” days such as Friday, when options contracts expire on stocks and stock indexes.

Beyond the Dow, broader market indexes also tumbled.

Declining issues outnumbered advancers by a nearly 3-to-1 margin on the New York Stock Exchange, where volume totaled 537.82 million shares, vs. 530.52 million in the previous session.

The Standard & Poor’s 500-stock list was down 23.96 at 900.81, and the NYSE composite index fell 10.56 at 469.10.

The Nasdaq composite index was down 24.66 at 1,562.03, and the American Stock Exchange composite index was off 4.88 at 635.51.

Some investors said the decline was overdue after the market’s wild ride to the record books. But there also are more fundamental concerns about the course of interest rates and corporate profits, especially in advance of a meeting Tuesday by Federal Reserve Board policymakers.

Fed Chairman Alan Greenspan has said that the nation’s central bank is prepared to raise interest rates if a pre-emptive strike against inflation is needed.

Overseas, Tokyo’s Nikkei stock average closed up 0.5 percent. Frankfurt’s DAX index was down 1.9 percent and London’s FT-SE 100 was down 2.5 percent.