The day was star-crossed: Friday the 13th in the month of October, on the eve of the second anniversary of a devastating market crash. "I'm telling you, psychology is really funny. People get crazy in situations like that," said portfolio strategist Elaine Garzarelli. Last week Friday the 13th lived up to its frightful reputation. After drifting lower at a sleepy pace for most of the day, the Dow Jones industrial average abruptly lurched into a hair- raising sky dive in the final hour of trading. By the time the 4 p.m. closing bell halted the rout, the index had dropped a nightmarish 190.58 points, or nearly 7%, to close at 2569.26.
The sell-off was the sharpest since the market plunged 508 points on Oct. 19, 1987. In terms of points, it was the second largest loss in Wall Street history; in percentage, the day ranked twelfth worst. "It's total emotional and psychological chaos," said Eugene Peroni, an analyst with Janney Montgomery Scott, a Philadelphia brokerage firm. "People are dumping < everything. A great deal of money is being lost."
The drop invited instant comparison with the month's two historic calamities: the 1987 collapse on Oct. 19 and the 1929 debacle on Oct. 29. Particularly gnawing was the memory that 1987's Black Monday was preceded by a Friday plunge of 108.35 points. Last week's drop-off rekindled fears that an era of heedless borrowing by corporations and the Federal Government might finally be coming to grief. At the very least, the rout reminded investors that the stock market is a volatile place where fortunes can vanish at the touch of a computer key. After one frantic hour of selling conducted to a large extent by program trades, nearly $200 billion of stock values were wiped out last week.
The Bush Administration moved swiftly to avert any sense of crisis after the market closed. Declared Treasury Secretary Nicholas Brady: "It's important to recognize that today's stock market decline doesn't signal any fundamental change in the condition of the economy. The economy remains well balanced, and the outlook is for continued moderate growth." But Massachusetts Democrat Edward Markey, who chairs a House subcommittee on telecommunications and finance, vowed to hold hearings this week on the stock market slide. Said he: "This is the second heart attack. My hope is that before we have the inevitable third heart attack, we pay attention to these problems."
Experts found no shortage of culprits to blame for the latest debacle. A series of downbeat realizations converged on Friday, ranging from signs of a new burst of inflation to sagging corporate profits to troubles in the junk- bond market that has fueled major takeovers. The singular event that shook investors was the faltering of a $6.75 billion labor-management buyout of UAL, the parent company of United Airlines, the second largest U.S. carrier. "That's when all hell broke loose," said Robert Newman, a floor trader for Equitrade Partners. "It was very reminiscent of something I do not care to think about."