A day after suffering its biggest point loss in history, the U.S. stock market staged a stunning reversal yesterday with the Dow Jones industrial average soaring 337.17 points and volume on the New York Stock Exchange nearly doubling its previous record.
The Dow, the closely watched index of 30 blue-chip stocks, rose 4.71 percent to close at 7,498.32.
The huge increase was the largest single point-gain in the Dow's 101-year history, and it came just a day after the bellwether index had plunged 554.26 points.
"I am stunned," said Judith Jones, who runs a mutual fund with $500 million in assets under management for Cleveland-based Society Asset Management. "On these huge, huge days, I keep thinking: 'Who is doing this?' "
The surge came despite troubles overseas where stock markets were hammered yet again.
Panicked investors drove Hong Kong's Hang Seng down 1,438.3 points, or 13.70 percent, to 9,059.89. Its problems of rising interest rates and an unstable currency shook other markets, including those in London, Paris and Tokyo, all of which fell.
It appeared as if the U.S. market was going to follow suit at the opening bell and take a battering for a second day in a row. The Dow plunged nearly 190 points in the first 36 minutes, then staged a dramatic comeback as buyers flooded the market in the afternoon.
The New York Stock Exchange's daily trading volume nearly doubled to 1.2 billion shares after crossing the 1 billion mark for the first time ever.
For all markets and exchanges, 2.7 billion shares were traded yesterday.
Stocks that were ravaged Monday, such as International Business Machines Corp., made huge gains, and phone lines at mutual fund companies and investment houses were clogged with buyers.
On Monday, sellers ruled and stocks were punished. Investors worried that stumbling Asian economies would damage profits by many large U.S. companies that do business in the Far East.
The Dow lost more than 7 percent of its value on Monday, and "circuit breakers," which were installed on the New York Stock Exchange months after the Oct. 19, 1987, stock market crash, were used for the first time to prevent a free fall.
But yesterday buyers zeroed in on what they perceived to be bargains.
Brokers with Edward Jones, the discount brokerage firm,
strained to keep up with a flood of buy orders, said Chris Yanson, who works out of the firm's Towson office.
It took up to an hour to execute trades. By afternoon, as many as 15,000 orders were waiting to be executed.
Joseph Newell, who runs a hedge fund and is a partner in Walsh & Co., an Easton-based discount brokerage, said earlier in the day that "buyers are coming in droves."
He took 20 orders to buy stocks before the market opened, and he had a stack of buy orders about 2 inches thick, he said.
"These are the buy-on-the-dip people," he said, referring to investors who buy stocks when they fall. "They are just looking to buy on strength."
At T. Rowe Price Associates Inc. the phones rang off the hook. The Baltimore-based mutual fund company fielded an estimated calls yesterday, 60 percent more than on a typical day.
In the morning, investors placed orders to move money out of international stock funds and into money market funds, said Steven Norwitz, a company spokesman. But when the market began rising, they canceled those orders and asked that the money be invested in stock mutual funds.
"Bottom line there is a lot of sound and fury signifying nothing," Norwitz said.
Society's Jones snapped up deals as did many other money managers. She bought shares of AlliedSignal Inc., Anheuser-Busch Cos. and Avon Products Inc., she said.
"I put my orders in early," she said. "I thought the market would rally, but then I thought it would fade toward the end of the day."
Like many others, she was wrong.
By 3: 17 p.m., the Dow had climbed 353.62 points, or nearly 5 percent, to 7,514.77 before closing slightly lower.
Other stock indexes charged back during the day as well.
On the Nasdaq, where many well-known technology and health care companies trade, the composite index rose 65.25 points, or 4.25 percent, to close at 1,600.34.
The Standard & Poor's 500 stock index jumped 40.62 points, gaining 4.63 percent, to close at 917.60. And the Russell 2,000 index, which is made up of smaller company stocks, gained 8.29 points, up 2.12 percent, to close at 429.05.
Experts wondered how two days of trading could contrast so markedly.
James Bohan, senior market analyst with Merrill Lynch & Co. in New York, said foreign investors on Monday sold heavily, expecting Asia's problems to sap the profits of large U.S. companies.
"I think there is a foreign element that is a big factor," Bohan said. "It just didn't seem like a panicky atmosphere was that apparent here. The man on the street didn't show a lot of concern."
Don Hays, director of investment strategy with Richmond, Va.-based Wheat First Securities, blamed Monday's drop on "momentum" investors who buy stocks when they are rising and sell them when prices fall.
"It is like a domino effect," he said. "It is almost impossible to stop."
J. Patrick Bradley, director of economic and investment research with Baltimore-based Mercantile Bankshares Corp., said that on Monday investors had "made up their minds that they were going to sell."
"There is really no way to stop it," he said. "It was just one of those days when all of the pent-up fears and pent-up pressures just sort of released. People were just not going to wait another moment, they were just going to sell."
But Monday's selling had created Tuesday opportunities.
Intel Corp., which had fallen 12 percent from last Tuesday through Monday, gained $10.25 a share to $85 yesterday. IBM, which announced plans to buy back up to $3.5 billion of its stock, saw its shares jump $9.375 to $99.375.
Hays worries that history will repeat itself. Ten years ago, investors bought heavily after the stock market plunged more than 26 percent on Oct. 19, 1987.
"People bought wildly the first two weeks," he said. "After that, they totally froze."
He predicts that the Dow will not make another high for two years. On Aug. 6, it reached 8,259.31.
"It is my guess that the market might move more sideways than anything else for the next few months," he said. "Is that a bear market? I don't know, but it is not a bull market."
Pub Date: 10/29/97