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On Friday the sell-off continued in the morning. By midday a furious rally was under way, recovering more than half of Thursday's losses, but it soon fizzled. When the closing bell rang, the Dow had dropped an additional 34 points, swelling the week's loss to 141 points, the worst ever. Volume set another record, rising to 240 million. At the end of Wall Street's most hectic week, the Dow stood at 1758.72, down 161 from its September high. On the Big Board, losers outnumbered winners 4 to 1 on Friday. The American Stock Exchange and the over-the-counter markets also suffered steep drops.
The carnage was not confined to the U.S., since traders abroad are also worried about the prospects for the American economy. The tremor hit the London Stock Exchange, driving it down 27.3 on Thursday, its ninth greatest drop. In Ontario, the Toronto Stock Exchange dropped 2.4%, its largest one-day fall in 6 1/2 years. The day was "wild and woolly -- one of those rocket sessions," said Ron Woods of Merit Investment of Toronto. There was also a surge of selling on the Tokyo Stock Exchange, and even a fistfight. Two young traders punched each other as they fought to execute their sell orders.
Investors tried to put the bloodbath in perspective. While severe, it still left the Dow 212 points above what it was at the start of 1986 and a remarkable 1000 points above its level in August 1982, when the bull market started. Quantitatively, it was the largest falloff ever, but the 4.6% drop in share values on Thursday was nowhere near the chilling 12.8% plunge of the Great Crash on Oct. 28, 1929.
What caused the sell-off? Long-simmering worries about the health of the American economy, in the view of many experts, simply boiled over. A $200 billion budget deficit, says Brian Smith, a newsletter publisher in Alexandria, Va., would be roughly equal to the profits of all U.S. corporations, and nothing seems to make the deficit shrink. Said Albert O. Nicholas, president of the $1 billion Nicholas Fund in Milwaukee: "The economy isn't all that robust, and companies aren't coming up with the earning increases or even maintaining the earnings to support the stock-market euphoria that came about because of declining interest rates."
Many professional traders were mystified by the timing of last week's sell- * off. Said Michael D. Smith, senior vice president of institutional sales at B.C. Christopher Securities in Kansas City: "Nobody knows what's going on. Why did they discount American business 4.6% yesterday?"
A big role was doubtless played by rumors that created an explosive trading environment, like a roomful of ether waiting for a spark. One story, quickly squelched, was that Ronald Reagan had suffered a heart attack. Most of the other rumors involved speculation about renewed inflation and higher interest rates, the traditional enemies of stocks. At one point, word spread that two governors of the Federal Reserve believed interest rates, on a long two-year slide, had bottomed out. One broker was so confident of the information, which turned out to be false, that he told a client to call back in a few minutes for a full text of the Fed governors' remarks.