The panic was gone, but not the sense of helplessness. Like survivors of a natural disaster, Wall Streeters swung in a half-rational pendulum of despair and delight last week. Ready for a fresh quake in any direction, investors searched for definite portents in every new development in the U.S. dollar, interest rates and the budget deficit. But if the market was capable of a one- day, 508-point drop on Black Monday, Oct. 19, who could say what it might do next? Some seers thought they knew, yet their conclusions were as contradictory as they were passionate. "We are out of the woods!" proclaimed a bull, Michael Metz, an analyst for Oppenheimer & Co. "The house is on fire. Stay out!" declared a bear, Jay Goldinger, a Beverly Hills financial adviser. "There's no reason to go back in and be a hero," he added.
Yet for the moment the bulls held sway -- barely -- despite the scorching they received on Black Monday. Their derring-do sent the Dow Jones industrial average up 42.77 points last week, to close at 1993.53. Fueled mainly by large institutional investors, the rise was the first feeble recovery following the back-to-back record weekly drops of 235.48 and 295.98 points earlier this month. Even so, the market's comeback is nascent, to say the least. The Dow now stands 729 points, or 27%, below its August peak of 2722. In terms of lost value, U.S. stocks remain $850 billion below their recent high. Moreover, while many big shots may be persuaded that the market is safe to re-enter, the general population will not soon forget the spectacle of Wall Streeters in a panic. Consumer confidence shows signs of flagging at just the wrong time, the beginning of the Christmas retailing season.
Still, the market's trend last week was definitely up. The Dow began in the depths of gloom, sinking 156.83 points on Monday to record the second biggest point drop in history. The next day brought the beginning of the rally, for no apparent reason except that investors still had cash to invest after selling so furiously in previous sessions, and began to see blue-chip bargains among the battered stocks. The Dow rose 52.56 on Tuesday, .33 on Wednesday, a robust 91.51 on Thursday and 55.20 on Friday. Even the over-the-counter market, which was more devastated in the fall than the New York exchange, showed signs of life on Friday, rising 5.3%.
Among the newly confident buyers were foreign investors, who had recoiled in the aftermath of Black Monday and whose return had been considered doubtful. "We believe that the U.S. market has bottomed out. The worst is over," said Yoshitaka Yamashita, an executive vice president for Japan's Nomura Securities. "Things have stabilized, and again we are accumulating shares."
The market's sturdiness was particularly impressive in the face of a sliding U.S. dollar, which fell 2% to 3% last week against major trading currencies. At one point the dollar traded in New York at 137.20 yen, a 40-year low, and 1.721 West German marks, the lowest in seven years. The drop apparently represented a Reagan Administration plan to abandon its policy of holding the currency steady in favor of allowing it to enter a managed decline. Many economists believe the dollar must fall 10% or more to help ease the U.S. trade deficit by making American goods more competitively priced.