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Nowhere was the shock greater than on Wall Street, where some traders had left work early Friday to enjoy a balmy Indian summer day. "I was on the floor until 2:30," said specialist Stone. "The trading was so quiet that I decided to go home." But by the time he got there shortly after 3, the damage was already out of control. "I saw quite a bit of panic selling," said Muriel Siebert, who heads a discount brokerage that bears her name. UAL shares fell 5 1/2 points before trading in its stock was halted because the number of sellers overwhelmed buyers. Delta Air Lines, a frequently rumored takeover target, dropped 7 3/4.
Some safeguards installed in the market after the 1987 crash may have helped cushion last week's fall. In Chicago the Mercantile Exchange twice halted trading in S&P 500 futures contracts, which represent the stocks in the Standard & Poor's 500 index. The automatic cutoffs, or "circuit breakers," slowed the contracts' drop. In 1987 parallel free falls in New York and Chicago, which are linked by computerized trading programs, had aggravated the collapse. But last week some Chicago traders claimed that the stoppages in futures trading restricted the ability of some investors to hedge their losses, forcing them to dump stocks and exacerbating the selling frenzy in Manhattan.
Many investors, especially short-term speculators, were badly shaken. The biggest losers were Wall Street arbitragers, who make money by buying the stock of takeover targets and selling it at a higher price when the deals go through. The high anxiety about the junk-bond market sent the stocks of takeover targets plunging across the board. "The arbs got their heads handed to them," said Anson Beard, the chief trader for Morgan Stanley. "Very few anticipated that the UAL buyout could fail." Small investors suffered less because they have been less active in the market since the 1987 crash.
The market drop echoed around the world. In Tokyo, Noriko Hama, a senior staffer at the Mitsubishi Research Institute, warned that "it could be very hard to stop" the Wall Street plunge from sending ripples through foreign stock exchanges. Tokyo's volatile Nikkei index fell 445.02 points last Thursday, its sharpest drop since June. The index rebounded 320.97 points on Friday to close at 35,116.02, down 93.33 for the week.
To many investors, the most disturbing aspect of the Wall Street slide was its breathless speed. "We have a history of market bubbles and panics," says Allen Sinai, chief economist for the Boston Company Economic Advisors. "But because of the advance in communications, corrections that used to take days, weeks or months now take minutes. Any positive or negative events get communicated in seconds." Sinai added that while "a drop of 190 points is shocking and a source of great anxiety and nervousness, it doesn't suggest that the sky is going to fall. The lesson of 1987 is that financial markets often have a life of their own."