Tuesday, October 28, 1997
Stocks plunge on ‘Gray Monday’
FINANCES ‘Circuit breakers’ close New York Stock Exchange for
first time after it tumbles 550 points
By Gregory Mena
Daily Bruin Senior Staff
For the first time in history, trading on the national stock
exchange was shut down Monday after the Dow Jones industrial
average plummeted.
The shutdown of the New York Stock Exchange (NYSE) came at 3:30
p.m. Eastern time as losses mounted following a 30-minute trading
halt that was ordered when the world’s best-known stock market
indicator had plunged more than 350 points.
Once trading resumed, it took just 25 minutes for the Dow to
drop an additional 200 points. The day ended with a 7.2 percent
decline, the biggest one-day percentage decline since Oct. 26,
1987, a week after the 508-point crash of Black Monday Oct. 19,
1987.
The Dow Jones industrial average fell 554.26 to 7,161.15.
But experts at UCLA’s Anderson School of Management downplayed
the hysteria. This crash, said Duke Bristow, a senior fellow of the
Harold Price Center for Entrepreneurial Studies, was much less
significant than the one in 1987 – which happened almost 10 years
ago to the day.
"This is ‘Gray Monday’ because it is not that bad of a crash,"
Bristow said.
The plunging prices followed a day of turmoil in global
financial markets, triggered by a 6 percent drop in Hong Kong’s
main stock index.
The financial crisis in Hong Kong has re-ignited fears about
whether global business conditions will be undermined by Southeast
Asia’s shaky economic status.
Others disagree that there is a necessary relation.
"There are days when the Hong Kong market goes down and our
market isn’t affected," said Anderson Professor Eduardo
Schwartz.
In Tokyo Monday, the Nikkei stock average fell 1.9 percent.
Frankfurt’s DAX index dropped 4.2 percent, London’s FT-SE 100 fell
2.6 percent, and Paris’ CAC-40 dropped 2.8 percent.
"The market was in a correctional phase for three weeks, and the
situation in Asia just opened the flood gates," said Alfred E.
Goldman, vice president at A.G. Edwards & Sons Inc. in St.
Louis.
Also feeding on Monday’s market free-fall were concerns that the
bull market is ending. The Dow has fallen 13.3 percent since
reaching its peak of 8,259.31 on Aug. 6.
While stocks slumped, U.S. Treasury bonds bucked the trend as
investors sought safer places to put their cash until the equity
markets steady. The rise in bond prices pushed the yield on the
30-year Treasury – a key influence on borrowing costs – down toward
its lowest level since early 1996.
The Standard & Poor’s 500-stock list fell 64.65 to 876.99,
and the NYSE composite index fell 32.56 to 463.21.
The Nasdaq composite index fell 115.43 to 1,535.49, and the
American Stock Exchange composite index fell 40.74 at 660.44.
The University of California system has a vested interest in the
health of the stock market – the pension funds for all its
employees are invested in public stocks.
But the changes in the stock market will probably not affect the
UCLA pension funds, said John Mamer, interim dean of the Anderson
School of Management, because they are diversified enough to
withstand this kind of shock.
Anderson School faculty have also expressed their interest in
the academic side of the changes.
"This is the first time the circuit breakers have completely
closed the market since the crash in 1987," said Bristow.
The "circuit breakers" were established after the Black Monday
in 1987 if it declines by a certain amount to give people time to
handle it, Bristow said.
"This is really a test. It is the first time that we’ve built a
circuit breaker into the system," said Mamer. "The question is,
will traders come to their senses overnight? It’s really a matter
of investment psychology."
"No one expects these types of crashes to cause depression
because of changes in securities and banking regulations," he
continued.
With reports from Daily Bruin wire services and Hannah Miller,
Daily Bruin senior staff.