Fears that Brazil's crumbling economy will cut into profits of U.S. corporations, coupled with renewed worries about President Clinton's political future, shook the stock market yesterday.
The Dow Jones industrial average slid 228.63 points, or 2.45 percent, to 9,120.93, erasing the index's gains for the year.
In the past four days the closely watched index of 30 blue-chip stocks has fallen 522.39 points, or 5.7 percent.
"We had the Asian flu, now we are having the Latin samba," said Angel Mata Jr., head of listed equity trading at Baltimore-based Legg Mason Wood Walker Inc. "Do I think this is the beginning of a severe, long-term downturn in the market? No."
The Dow's decline started at the opening bell and it slid steadily after a second key banking official in Brazil resigned. Trading on Latin America's largest stock market, the Sao Paulo stock exchange, was suspended for about a half-hour after stocks fell 10 percent.
Brazil, which has battled for months to stabilize its economy, jolted world markets Wednesday when it devalued its currency -- the real -- by about 8 percent, and announced that its central banker, Gustavo Franco, had abruptly quit.
Brazil is viewed as the economic engine of Latin America, and there is fear that if its economy worsens, neighboring countries will suffer along with U.S. multinationals, who export everything from soft drinks to washing machines to the region.
Jim Grefenstette, senior portfolio manager at Pittsburgh-based Federated Investors Inc., which manages about $115 billion, said investors are seeing a replay of the Russian currency debacle last August and September's near failure of the hedge fund, Long-Term Capital Management L. P., which jarred U.S. markets and sent investors fleeing for havens, such as money market funds and bonds.
"I think there is just a heightened sense of apprehension," Grefenstette said.
Grefenstette said Brazil's problems could force the Federal Reserve Board to cut interest rates.
The Dow wasn't the only index to post losses for the day. The Standard & Poor's 500 stock index, a broad barometer of the stock market, dipped 22.21 points, or 1.80 percent, to 1,212.19. The Nasdaq composite index, which is dominated by many of the country's largest and most visible technology companies, fell 39.99 points, or 1.72 percent to 2,276.82.
Trading was heavy yesterday, with New York Stock Exchange volume reaching about 797 million shares. For every five stocks that rose on the Big Board, 12 fell.
Besides the Brazilian crisis, the market was throttled by uncertainty over President Clinton's political future and investors' decision to dump stocks and take profits, experts said.
While investors have appeared to have largely ignored what is happening in Washington, there is growing anxiety over the nation's direction if Clinton is ousted.
Yesterday, House prosecutors opened their case to remove Clinton, alleging that he misused his office by trying to conceal an affair with White House intern Monica Lewinsky.
"Even though it [President Clinton's possible ouster] has always been there, nobody seems to be backing off," said Barry Berman, managing director of equity trading at Milwaukee-based Robert W. Baird & Co.
"There's more room for negative surprises," Charles White, president of New York-based Avatar Associates, a $3.5 billion money management firm, told Bloomberg News.
Many analysts, however, are upbeat about the market's prospects because the economy remains healthy with low inflation and low interest rates. If anything, they said the declines are positive because they have cooled off a market that has been on a tear. Many of the Internet stocks, which rocketed to highs last Monday, have come down in the sell off.
"This nervousness is going to blow off a lot of the steam," said David M. Citron, a partner at Wagner Citron Management Corp., a Baltimore-based money management firm that oversees $270 million in assets. "When the money comes back into the market, it is going to come into the big issues."
Citron's favorite is Coca-Cola Co., which closed yesterday at $63.50, down $1.6875, and has not recovered to its July 15 high of $88.9375.
Mata of Legg Mason expects the market to trade sideways for about a week, and then start marching upward.
"I think we will slowly but surely move higher," he said. "I don't think this is a cause for panic."
Pub Date: 1/15/99