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Certainly, the market's behavior all year has been enough to keep almost anyone wide awake. After reaching what some analysts felt were the final stages of a bull market that began in 1982, the Dow exploded from 1502 in January of this year to 1856 in April, the biggest three-month gain in history. Then the market suddenly went into fibrillation. The Dow dropped a bearish 46 points one day (June 9) and 62 another (July 7). The bulls came back with a rush on Sept. 4, when the Dow reached a new all-time high of 1920. But on Sept. 11 and 12, in a frenzied wave of selling, the Dow slid 121 points, including a one-day drop of 87, the worst ever. Since then, the indicator has continued to jounce at unpredictable intervals in 20- and 30- point jumps and dips, closing last week at 1878, the same level that it had reached in May.
The result of all that unpredictability has been a bull market in benchmarks. No fewer than seven of the ten worst one-day declines in stock- market history, measured in terms of drops in the Dow, have taken place in the past ten months. So have five of the ten best single-day tallies ever recorded.
Those Himalayan highs and lows have spawned reflexive worries about a possible major stock-market crash, a la 1929. That is unlikely. Professional analysts are quick to point out that in percentage terms, the ups and downs of the Dow and other stock-market indicators are much less frightening than they appear. The Sept. 11 decline, for example, amounted to a 4.6% drop in a Dow Jones average of 1879.5. By contrast, on Oct. 28, 1929, the Dow fell 12.8%, or 38.3 points, to 260.64. Argues Henry Van der Eb, president of the Chicago- based Mathers investment firm: "The market isn't any more risky than it was. But it's more nerve-racking."
Whether or not risks have been heightened, the computerization of stock trading has made the market more responsive than ever to the freewheeling instincts of a powerful breed of institutional investors. They are the portfolio managers of huge pension, insurance and mutual funds, along with private investment groups and the equity-trading departments of major brokerages and banks. In all, U.S. institutions have an estimated $950 billion in stocks and gigantic batteries of electronic brains at their disposal. At the touch of a button, or the press of a panel on a touch-sensitive computer screen, the trading behemoths regularly send hundreds of millions of dollars cascading in and out of the markets, affecting the value of hundreds of stocks simultaneously. Even though they control only about 33% of the equity on U.S. exchanges, institutional investors currently make about eight out of every ten stock trades each day.
The frantic activity of these pachyderms has led to the biggest surge in trading volume in stock-market history. The major focus for the explosion is the New York Stock Exchange's Big Board, where 1,523 stocks worth an estimated $2.1 trillion are listed. Only a decade ago, 30 million shares changing hands daily would stretch the capacity of the New York exchange to the limit, leading to hours of delays in completing transactions. This year the volume has skyrocketed to an average of about 140 million. During September's record sell-off, an unprecedented 240.5 million shares changed hands during a single day.