Stocks Plunge as Investors Sprint to the Exits

An unprecedented tsunami of selling pounded through the stock market, shutting down trading half an hour early and leaving once-cocky market players deeply shaken.

No corner of the equity world was untouched as the Dow Jones Industrial Average, the Nasdaq Composite Index and other major indices rushed toward their worst one-day point declines ever. In what traders called an orderly selloff, the Dow plunged 354.37 points by 2:35 p.m. EST, forcing a half-hour trading halt for the first time since the 350-point-decline halt rule was instituted earlier this year. (The original circuit-breaker rules, crafted after the Black Monday crash in 1987, called for a halt after a 250-point loss.) The Nasdaq, down nearly 93 at that point, took a breather as well.

When trading reopened at 3:05 p.m., so did the floodgates. A chart of the Dow from that point looks like a side of the Transamerica pyramid. The slide was stopped only by the triggering of the day's second halt, a one-hour break at a loss of 550 points. With less than an hour to go in the trading session, the day was over with the Dow down 554.26, or 7.2%, to 7161.15. That beat the previous point-drop record of 508 from the Black Monday crash, but it didn't approach that 22.6% debacle in percentage terms.

The tech-anchored Nasdaq lost 115.85, or 7%, to 1535.07. Its biggest previous point decline was a loss of 46.12 in the 1987 crash. The broad S&P 500 lost 64.66, or 6.9%, to 876.98, and the small-cap Russell 2000 fell 27.40, or 6.1%, to 420.13. The Dow Jones Transportation Average gave up 234.57, or 7.2%, to 3004.58, and the Dow Jones Utilities Average lost 9.12, or 3.7%, to 237.44. Bonds, flat at midday, enjoyed a huge flight-to-quality rally, with the yield on the bellwether 30-year Treasury diving to 6.15% on a price increase of about 1 1/2.

Even some of the Street's bears were in no mood to gloat as their predictions of a stock break came galloping to fruition. "For the short term, I think it is overdone," said Charles Crane, chief market strategist at Key Asset Management. "I've been cautious about the market, I've been concerned about valuations, but big selloffs like the ones we've seen in the last week, culminating in the halt today, will do little to get rid of the complacency we seen in the market."

A sudden break like today's raises the prospect of a drop greater than even what the bears are looking for, Crane noted. "With interest rates in the vicinity of where they are now, I would think the S&P would be fairly valued at 850, 860, in that range," he said. "Seven thousand, 7100 on the Dow. But just like the pendulum swung too far to the positive side in the past couple of years, we could see the pendulum swing too far to the negative side if we get a real change in sentiment."

Tech stocks were among the day's worst performers, with Dell (DELL) down 12 3/16 to 81 3/4, Compaq (CPQ) down 8 1/4 to 60 1/2, Cisco (CSCO) down 7 5/16 to 72 7/8, Microsoft (MSFT) down 6 5/8 to 128 3/4 and Intel (INTC) down 5 1/4 to 74 3/4. Crane wasn't surprised. "Those stocks had been discounting an acceleration of technology spending," he said. "To expect it to grow at an ever more rapid pace was, I think, unrealistic. As those stocks sell off here on warnings from the likes of Intel and others, it's going to unnerve some investors -- it has unnerved some investors."

The ever-bullish Steven Adler, head of the Dow-tracking (ASMUX)ASM Fund, takes a more sanguine view. "It doesn't really look like a precursor to anything serious," he said of the plunge. "We'll look back at this two or three months from today as a buying opportunity. Each one of these dramatic drops give you an opportunity to come in at a lower price. Some take it, some don't. This is an example of a time when you take it."

So what do you take? "I'd be buying Caterpillar Tractor (CAT)," Adler said. Cat was down 5 1/8 to 52 13/16 today. "Things that are more in the world of necessity, things that General Electric (GE) does, Exxon (XON). I wouldn't write Coca-Cola (KO) off, because some people argue that that's a necessity."

Tony Dwyer, chief market strategist at Ladenburg Thalmann, wasn't quite so ebullient as Adler but came to essentially the same conclusion. "We're damn close to a bear market, down almost 15%, so I think it did more than clear out the excesses," Dwyer said. The Dow is down 13.3% from its Aug. 6 high of 8259.31 and the Nasdaq is down 12.1% from its Oct. 9 high of 1745.85. "At this point I think you're too late to sell, and if there's not a dramatic, fundamental change, I think you have no choice but to view it as a buying opportunity.

"I don't want to say you buy right at the opening tomorrow, I think you let the dust settle," Dwyer continued. "I think the initial move will be back toward the large-cap, stable-growth companies, and you're going to get a snapback of some proportion in the tech stocks."

Fred Sturm, chief economist at Fuji Securities in Chicago, had his own succinct prediction of tomorrow's action: "It's going to stink like a high-school lab experiment that went wrong."

Today's market internals were the most sharply downside-biased of the year. New York Stock Exchange decliners annihilated advancers by 2,974 to 158 on 694.7 million shares. New Big Board lows crushed new highs by 169 to 22. On the Nasdaq, 4,631 decliners pummeled 409 advancers on 919.6 million shares. New Nasdaq lows walloped new highs by 228 to 39.

For all the selling, 1997 isn't quite from a washout so far. The Dow is up 9.1% to date, the S&P 500 is up 15.9%, the Nasdaq is up 18.9% and the Russell 2000 is up 17%.

Monday's market action (earnings estimates from First Call):

Few stocks stood out in today's carnage, but Oxford Health Plans (OXHP) definitely made its presence felt. The stock collapsed 42 15/16, or 62.5%, to a two-year low of 25 7/8 after warning that it expects to report a third-quarter loss of 83 cents to 88 cents per share. The 24-analyst consensus estimate called for a profit of 47 cents versus the year-ago 33 cents. A raft of analysts downgraded the stock. Among the peers Oxford helped to drag down: United HealthCare (UNH), down 8 9/16, or 16.6%, to 43 1/16; WellPoint Health Networks (WLP), down 8 3/8, or 15%, to 47 1/2; and Aetna (AET), down 6 3/8, or 8.5%, to 69. (TheStreet.com looked at some of Oxford's unfortunate shareholders and one of its more hapless analyst teams in a story today.)

Micro Warehouse (MWHS) also took a beating on fundamentals, losing 8 3/4, or 42.3%, to 11 15/16 after its president and CEO resigned. The company said the chief executive and the board disagreed on certain strategic matters. Micro Warehouse also reported third-quarter operating earnings of 16 cents per share, in line with the seven-analyst expectation but down from the year-ago 31 cents.

What rose today? Japanese industrial concern Kubota (KUB), up 2 1/2 to 26 3/4 on news of its pending $1.2 billion acquisition by National Australia Bank. On the Nasdaq, Eagle Financial (EGFC) jumped 5 3/4 to 47 1/2 on word of its pending stock-swap acquisition by Webster Financial (WBST). Webster tumbled 6 7/8 to 58 3/4.

Financials reaped no benefits from the surging bond market, with banks and brokerages absorbing large losses regardless of their degree of Asian exposure. Citicorp (CCI), which does happen to have a big Asian business, lost 13 5/16, or 9.7%, to 123 5/16. Morgan Stanley Dean Witter Discover (MWD) lost 6 9/16, or 12.2%, to 47 5/16, Merrill Lynch (MER) lost 8 3/8, or 11.6%, to 64, BankAmerica (BAC) lost 8 1/8, or 10.7%, to 67 15/16, J.P. Morgan (JPM) lost 7 15/16, 6.9%, to 108 and Chase (CMB) lost 6 11/16, or 5.4%, to 116 15/16. (TheStreet.com examined the financial-stock landscape in a story today.)

Intel and Digital Equipment (DEC) buried the hatchet today, with Intel agreeing to buy DEC's semiconductor manufacturing operations for $700 million. The companies will collaborate on new products. Any reaction to the deal's fundamentals was subsumed by the big selloff, with Digital down 5 5/16, or 10.5%, to 45 1/4. Other chip makers declined sharply as well, with Advanced Micro Devices (AMD) leading on the downside. It gave up 5 3/16, or 19.8%, to 21.

U S West announced that it would split into two separate companies, one with its phone operations (U S West) and one with its cable and media operations (MediaOne Group). The units already trade under targeted stock, and neither did well today. U S West Media Group (UMG) fell 2 5/16, or 8.7%, to 24 1/4, and U S West Communications Group (USW) slid 1 5/16 to 38 9/16.

Microsoft filed a countersuit against Sun Microsystems (SUNW) in their ongoing licensing dispute over Sun's Java technology. Sun was down 3 1/4, or 8.7%, to 34 5/16.

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