A selling panic swept through Wall Street on Monday, sending the Dow Jones Industrial Average down a record 554.26 points and forcing the New York Stock Exchange to halt trading twice and close a half hour early.
The 7.18 percent plunge was the 12th largest in history, but nowhere near the 22.61 percent drop that rocked the markets a decade ago. The Dow closed Monday at 7,161.15, 13 percent below its August peak.
More volatility could be in store today and the next few weeks, particularly if foreign markets continue their decline. Monday stocks were down about 3 percent in most European markets, 2 percent in Japan, 6 percent in Hong Kong, 12 percent in Mexico and 15 percent in Brazil. The decline continued as markets opened today.
"It's too late to sell, but by the same token, it's definitely too early to buy," said Ralph Bloch, chief market analyst for Raymond James & Associates in St. Petersburg. "On a decline like this, the odds of this market turning, getting healthy and immediately taking off to new highs are zero."
However, the market could still rally today or later this week if bargain hunters have the courage to step into the fray.
"There's obviously panic going on here," said Gerald Perritt of Largo, manager of the Perritt Capital Growth Fund. "People emotionally overreacted to stocks on the upside and now they're emotionally overreacting to the downside."
He was bargain hunting himself Monday afternoon, although he said a wave of shareholder redemptions could force him to sell today.
"I'm supposed to buy stocks at reasonable prices and a lot of stuff that was selling pretty reasonably a couple weeks or months ago is now at bargain basement," he said. "I've got to buy."
Concerns about Asian financial markets and economies prompted many investors to start selling Thursday, when the Dow dropped 186.88 points. Friday it fell another 132.36 points. Then Monday, lower prices around the world set up the plunge in the United States.
The immediate fear is that Asian economic problems and falling currency values will translate into reduced sales and profits for U.S. companies that sell overseas. However, that will not necessarily have a big impact on the U.S. economy.
"It is important to remember that the fundamentals of the United States' economy are strong and have been for the past several years, and the prospects for low inflation and low unemployment are strong," Treasury Secretary Robert Rubin said in a brief statement aimed at reassuring investors.
The underlying problem is that U.S. stocks had risen so far so fast that they were vulnerable to any threat of disappointment.
"It's really not that bad of a situation," said Boca Grande money manager Ray Hines. "In fact, these things could work out to be good for our economy."
One big plus is that investors fleeing U.S. and foreign stocks have been plowing money into U.S. Treasury bonds, sending interest rates lower. Although there are no guarantees, it also appears to be much less likely that the Federal Reserve Board will consider it necessary to bump up interest rates in order to keep inflation under control.
Low interest rates make stocks relatively more attractive and give company earnings a boost because it is cheaper to borrow money.
However, stock traders were not giving much thought to interest rates Monday. Instead, they were paying more attention to technical indicators, such as "support lines," which show where previous downturns bottomed out, and "moving averages," which show whether a trend is still in place.
When the Dow Jones Industrial Average crossed 7,600, it triggered a "sell" signal in the systems many traders follow. Going below 7,400 was even worse. For the first time ever, the New York Stock Exchange halted trading under the "circuit breaker" rules designed to prevent a market free fall. When the Dow falls 350 points, trading stops for 30 minutes. When it is down 550, it stops for an hour.
The first 30-minute halt, triggered at 2:35 p.m., seemed to make the sell-off worse. When trading resumed, the market fell another 200 points in less than 24 minutes, when the stock exchange shut down for the day.
It was the first time the Big Board has ever closed early other than after presidential assassination attempts.
"The trading halts caused selling momentum to build up," said William Ferree, who publishes the Ferree Market Timer in Clearwater and had been warning his readers to stay on the sidelines.
Raymond James analyst Bloch called the circuit breakers "foolishness" based on an unrealistic view of human behavior. He says the exchange expects traders to "think about it for a half hour and then come in and buy." Instead, they sold the minute the market reopened.
Declining stocks outnumbered advancers on the New York Stock Exchange by 2,994 to 158. Over on the Nasdaq Stock Market, 4,427 stocks fell and only 365 gained.
The combined market value of all NYSE, American Stock Exchange and Nasdaq issues dropped $600.04-billion Monday, shrinking the markets' value to $8.537-trillion, as measured by Wilshire Associates.
"The fact you had this degree of a rout . . . especially when interest rates are behaving very well, says it was panic, it was fear," said Dirk van Dijk, an equity strategist at Dean Investment Associates in Dayton, Ohio.
One reason for Monday's selling is that many people have serious gains they want to protect. Even after Monday's 7 percent sell-off, the Dow is still up 11 percent for the year and the Standard & Poor's 500 index is up 18 percent.
Many mutual funds have fiscal years ending Oct. 31, and their managers don't want to end on a down note _ especially since their own bonuses are at stake. By moving to cash, they protect their gains. Many individual stock owners also set "sell" points for stocks in which they have big gains. As the market falls, those points are triggered.
More selling is probably in store, said J. Michael Pinson, who publishes an investment newsletter in Clearwater and sold his own favorite stock, Dell Computer, as the market began to fall.
"If we see another wave of selling in the international markets, that clearly is going to make themarket very negative going into Tuesday and Wednesday," he said. He says the Dow could fall to 6,400 before it bottoms out, but predicts the sell-off will be short-lived.
"When this market settles down in the near term, investors will have one of the best buying opportunities that we have seen in a long time," he said.
September and October are historically bad months for stocks, partly because it is a time when the Fed tends to nudge interest rates up, said market timer Ferree.
"It's between the strong periods of the summer and Thanksgiving-Christmas, when they supply liquidity," he said. "There also tend to be a lot of initial public offerings (increasing the supply of stock) and less money coming into the market from retirement accounts (reducing demand.)"
"There have been many panics and crashes and massacres in October," he said. Seven of the 15 largest percentage point drops were in October.
Monday is considered the worst day to sell stocks because volume is often below average, offering less resistance to a wave of selling.
"If you have a down day on Monday, often you have a turnaround Tuesday with heavy selling in the morning and then a reversal to the up side," he said. "We could have a trading rally of several hundred points, but it's not a good time to be buying."
Ferree recommends that investors stay on the sidelines until the market settles down.
That's not bad advice, said Steven Adler, manager of the Tampa-based ASM Index 30 Fund, which tracks the Dow. He said fund investors redeemed about $151,000 more in shares than they bought Monday.
"When anything is terribly uncertain, the smartest thing is to step back and be cautious until you can figure it out," he said. "'The challenge when you see something very bad is to say whether it is a precursor or an aberration. None of us can really stand up and say what it is at this moment."
"I think the jury is still out," said St. Petersburg money manager Kyle Krueger, who has been betting the market would decline. "There is nothing to me that indicates that this is the end of a correction as opposed to the beginning of one. It's better to wait."
Financial experts also say that investors should not let the market's ups and downs cause them to lose sight of their long-term goals.
"Predicting the market's short-term moves is virtually impossible, and in the long run, doesn't really matter," said Pierpont Morgan, investment strategist at Liberty Financial Corp. in Boston.
However, investors who have become accustomed to big gains every year may have to re-learn patience. After the 1987 crash, it took two years for stocks to reach their precash highs.
_ Information from Times wires was used in this report.
How the NYSE circuit breakers work
After the 1987 stock market crash, the New York Stock Exchange adopted new rules, often called circuit breakers, intended to slow a market fall.
50 points: When the Dow Jones Industrial Average loses or gains 50 points from the previous day's close, computer program trades based on the stocks in the Standard & Poors 500 stock index are restricted. When the market is down, sell orders can't be executed at lower prices. In an up market, buy orders can't be executed for higher prices.
100 points: When the futures contract on the S&P 500 index falls 12 points, which works out to about 100 points in the Dow, program trading orders are set aside for five minutes. If orderly trading doesn't resume in a stock, its trading is halted. The five-minute rule does not apply in the last 35 minutes ot trading.
350 points: Trading in all stocks is halted for 30 minutes.
550 points: Trading is halted for one hour.
A sampling of how companies fared
(before capitalization Price
LOCAL Mon.) (before Mon.) (after Mon.)
Jabil $48.25 $1.8-billion $45.00
Raymond James $32.50 $1-billion $29.6
Catalina Marketing $52.50 $963.3-million $48.44
ABR Information $24.44 $669-million $22.00
Romac International $19.69 $483-million $16.94
Intel $80.00 $130.6-billion $74.75
IBM $98.00 $96.3-billion $90.00
Western Digital $33.25 $2.9-billion $30.31
Dell $93.94 $31.1-billion $81.88
Citicorp $136.63 $62.6-billion $123.31
capitalization Percent Price
LOCAL (after Mon.) change change
Jabil $1.6-billion -6.74% -$3.25
Raymond James $939.3-million -8.85% -$2.87
Catalina Marketing $888.7-million -7.74% -$4.06
ABR Information $602.3-million -9.97% -$2.44
Romac International $415.5-million -13.97% -$2.75
Intel $122.1-billion -6.56% -$5.25
IBM $88.4-billion -8.16% -$8.00
Western Digital $2.6-billion -8.33% -$2.94
Dell $27.1-billion -12.84% -$12.06
Citicorp $56.5-billion -9.74% -$13.32