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Brokerage houses rushed to convey a similar message to their customers after the plunge. Merrill Lynch urged investors to stay in the market for the long haul. The company recommended that customers split their investments among Treasury bonds and stocks of companies in such growing fields as health care and pollution control. "Looking for the quick killing is one of the surest ways of getting hurt in the stock market," says chairman William Schreyer. "One of the things we encouraged our clients to do after Oct. 19, 1987, was to stay with the market, think long-term and get professional advice."
Many investors seemed ready last week to stick with the market for the long haul. John Markese, research director for the Chicago-based American Association of Individual Investors, said most of the group's 110,000 members "did nothing" after the 1987 crash, "and I suspect they will do nothing this time." In San Francisco, investor Robert Simon said of Friday's drop, "It tells me the market is overheated. I have been wary since 1987," Simon noted, "and I am more wary today." Nonetheless, he said, he remained as heavily invested in stocks as he was two years ago.
Some market watchers viewed the drop as a signal of a coming U.S. downturn. While the economy avoided a slump after the 1987 crash, these moneymen fear that the U.S. may not be as lucky again. "I believe a recession of some sort is imminent," says Richard Huebner, a senior vice president of the Hanifen, Imhoff brokerage in Denver. "It didn't happen in 1987, but this time the environment is changed. Our economy was overheated then. This time it is slowing down, which makes recession more likely. The market appears to be telling us that it is six to nine months away."
But other experts considered Friday's free fall to be far less worrisome. Said James Wilcox, an associate professor of business administration at the University of California, Berkeley: "My own opinion is that the market was overvalued by at least 200 points and that basically this is a reversion to sanity. I look upon it as a breath of thoughtful fresh air." Peter Lynch, manager of the $11 billion Fidelity Magellan fund, was upbeat too. "America is not a basket case," Lynch said. "The only thing that could bring a major decline is if inflation went back into double digits."
In Congress the stock drop rekindled fears of a financial collapse that have flickered since the 1987 crash. Michigan Democrat Donald Riegle, chairman of the Senate Banking Committee, said the Friday decline might indicate "a marked change in market psychology" about the value of stocks that "would be a very important development, to say the least." Riegle, who this month called for a Government study of the role of junk bonds in leveraged buyouts, said the plunge indicated that "there's a lot more at work here than the LBO story." But a senior White House official insisted the drop simply reflected "the falling through of the UAL deal." He added: "We're confident the market will straighten itself out."