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Stocks back off new highs Dow falls 30


NEW YORK -- The stock market fell broadly yesterday in moderately heavy trading, as the "double witching hour" added a final bit of turmoil to a hectic week.

The Dow Jones industrial average gyrated wildly after setting records for two consecutive days. It fell sharply after the opening bell, recovered quickly by 10 a.m., and languished for much of the day. But around 3 p.m., the Dow plunged in earnest, losing some 46 points, following a rise in gold prices in the afternoon.

The Dow closed down 30.45 points, to 3,492.83, although it gained 49.82 points for the week.

Much of the Dow's volatility in the afternoon appeared tied to the "witching hour," which occurs every month when some options expire. Yesterday, both stock options and index options expired.

Institutions and big traders find it less expensive to buy an option that represents a bet on the future price of, say, the Standard & Poor's 500 stock index than to buy shares in all the 500 stocks. But, like a lottery ticket that goes uncashed, successful bets become meaningless if such options go unused.

Thus, the options expirations can sometimes lead to a frenzied burst of buying or selling stocks, as they did yesterday.

Nervous traders were further rattled by an unexpected increase in the nation's money supply, which raised more fears of inflation. Gold prices rose sharply, up $3.30, to close at $377.50 an ounce, while the yield on the 30-year Treasury bond climbed to 7.04 percent, its highest level in seven weeks.

Volume on the Big Board was somewhat heavy, at 279 million shares, compared with Thursday's 289.2 million shares. The New York Stock Exchange Composite Index closed down 2.15 points, to 246.27. Losing stocks are outnumbering winners by an 11-to-8 margin.

Among other market indicators, the Nasdaq composite index was down 3.14 points, to 694.29. But the American Stock Exchange market value index, reflecting a large number of gold and oil stocks, was up 0.57 point, to 432.86, a record for the third day in a row.

Late Thursday, the Federal Reserve Board said that its main measure of money supply, known as M-2, rose an especially steep $20.1 billion in the week that ended May 10, reviving traders' fears of inflation and a possible move by the Fed to raise interest rates.

But John R. Williams, a managing director of Bankers Trust Co., played down the number's significance. He wrote in a commentary that the figures might simply mean that more people were keeping money in cash and other liquid balances because of uncertainty in the stock and bond markets.

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