Wall Street Caps Record Year Bellwether Stock Indexes Post Gains Of More Than 20 Percent For An Unprecedented Third Year In A Row

Wall Street waved a weak goodbye Wednesday to a turbulent but record-setting 1997.

The stock market’s two major indicators slipped in soft trading as investors locked in profits after two days of strong advances. But with 3,000 balloons cascading to the floor of the New York Stock Exchange to end the trading year, the blue-chip Dow Jones industrial average and Standard & Poor’s 500-stock list finished 1997 with gains of more than 20 percent for an unprecedented third consecutive year.

In 1997, the stock market suffered the most severe one-day drop in history on Oct. 27 and battled worries about how Asia’s struggling economies would affect U.S. companies. But investors kept the bull market rolling, buoyed by a robust economy that produced strong profits and low inflation.

On a day when mariachi bands and bagpipers celebrated the end of the year at the NYSE, the Dow fell 7.72 to close at 7,908.25. That gave Wall Street’s best-known barometer a gain of almost 23 percent over 1996.

Even though the index of 30 blue-chip stocks finished below the all-time high of 8,259.31 set Aug. 6, the Dow more than doubled the modest rise most analysts were predicting when 1997 began.

Since 1987, the year of the Black Monday crash, the Dow has gained more than 300 percent - its biggest 10-year gain in history. The venerable index has more than doubled since the start of 1995.

The broader Standard & Poor’s 500-stock list slipped 0.41 to 970.43, a 31 percent rise for the year. While those bellwethers finished lower, the technology-laden Nasdaq Stock Market composite index and small-company measures rose Wednesday and posted strong gains for the year.

The market achieved most of its 1997 gain in the first half of the year, with the Dow blowing past 7,000 and 8,000 by mid-July, just before the troubles overseas began to unfold.

When the Dow cruised to a record 8,259.31 on Aug. 6, few suspected the blue chips had peaked for the year. But it was then that investors got their first whiffs of a smoldering currency crisis in Southeast Asia that seemed too vague and too distant to really worry about.

But suddenly, in late October, markets began collapsing in faraway places like Hong Kong, South Korea and Japan. And almost immediately, investors started running for the exits everywhere - Europe, Latin America, and even Wall Street - an old-fashioned financial panic.

By most accounts, individual investors remained fairly calm amid all the hysteria. Instead, it was the people paid to do their bidding - mutual fund managers and portfolio strategists - who were roundly accused of the reckless behavior fueling the selloff.

It may turn out that investors were too quick to shrug off the continuing turmoil abroad, which is already eating away at profits for some American companies.

But for now, the record plunge of Oct. 27 amounts to little more than a well-timed reminder of the Black Monday crash of 1987.

The near-meltdown halted trading for the first time since the stock exchange’s circuit breakers were established following the 1987 crash. When trading resumed the next day, the Dow initially plunged another 178 points, but turned around as Wall Street’s bargain-hunting horde set upon their appointed rounds. By the closing bell, the Dow had soared to a record gain of 337 points.

If they weren’t rattled by the severity of the market’s gyrations, however, even the most intrepid investor may have been unnerved by the frequency of those mood swings in 1997.

The Dow lurched more than 100 points higher or lower on 52 separate occasions in 1997.

“The market went from several years of below-average volatility to above-average, so the shock was really noticeable,” said Robert Streed, senior investment adviser at Northern Trust in Chicago.

But, most analysts insisted, volatility is a necessary evil that comes with the above-average returns of the stock market.

“We have been reminded that volatility is still part of equity investing,” said Jim Weiss, deputy chief investment officer for equities at State Street Research and Management Co. in Boston.

Few analysts are backing down from the conventional wisdom when they look ahead to 1998. If the bull needed a rest a year ago, all the more so now, they say.

“I would just take out last year’s predictions and use them again,” said Ricky Harrington, technical analyst at Interstate/Johnson Lane in Charlotte, N.C.

“When the final chapters are written for the textbook covering this bull market,” said Harrington, “it will say we got extended, but that the same rules of market psychology won out in the end.”

MEMO: This sidebar appeared with the story: Best and worst Here are the best- and worst performing industry groups of the Standard & Poor 500 Index in 1997: BEST - Truckers, +152.92%; Investment Banking, Brokerage, +80.71%; Saving and Loans, +74.23%; Airlines, +68.15%; Broadcasting, Media, +64.25%. WORST - Engineering and Construction, -37.47%; Gold, -34.99%; Metals (Miscellaneous), -34.52%; Shoes, -33.10%; Photography, Imaging, -23.39%.