A wave of heavy selling hit the stock market yesterday, with the Dow Jones Industrials Average quickly plunging by more than 100 points before bargain-hunters emerged and erased most of the losses.

In the first two hours of trading, the Dow fell 105 points, but rallied to close down 21.61 points at 3,179.00. That’s the lowest closing level since Jan. 2 for the widely watched barometer of the stock market’s health.

Blue chips dominate

While blue-chip stocks such as Ford and General Motors dominated the activity , with more than 3 million shares traded in those companies apiece, media stocks such as Walt Disney and Time Warner also rode through the volatile buy-and-sell cycle.

About 1.6 million shares of Disney–more than twice its recent daily average–traded on the New York Stock Exchange Monday. Disney hit a low of 33 1/ 4 mid-morning, then rallied to 35, and closed up 1/8 at 34 7/8.

Time Warner traded some 1.7 million shares, closing up 1/8 at 23 3/8, after falling to 22 3/8 earlier in the day.

Paramount Communications never rebounded, closing down 1 1/8 at 44, after 268 ,900 shares traded. One media insider cited Par’s theatrical dry spell, particularly the disappointing box office for “School Ties,” as one reason for the stock’s sluggishness.

Overall, though, media stocks were pulled along with the rest of the market, with prices closing down for the most actively traded issue, pharmaceutical marker Merck & Co., as well as IBM, Phillip Morris and Coca-Cola, also leading in volume of shares traded..

“I don’t think media stocks performed terribly different than others,” said Darice Grippo, a principal who specializes in media at the Boston investment research firm MacDonald, Grippo and Riley Inc. Most of the stocks traded were institutionally owned, she noted, and when prices fell, investors moved in to initiate or expand a position in those shares. “We’re talking big capitalizations, big names.”

Analysts also blamed a variety of unfavorable economic trends that have undermined investor confidence, including fears that the government can do little through new spending programs and interest rate cuts to fuel growth against the large budget deficit. The Dow’s early fall was also triggered by weak stock markets in Europe and Japan.

Arbitrage trading limited

The decline led the New York Stock Exchange to briefly limit stock index arbitrage trading, a computerized stock-trading strategy that can heighten volatility.

Turner closed down 1/2 at 19 1/2; News Corp., which is currently raising new capital in global markets, down 3/8 at 34 3/8; Capital Cities/ABC, down 6 1/8 at 446 7/8; CBS, down 1/8 at 212 3/8; Viacom, down 1/4 at 30 1/8; Gannett, up 1/4 at 47 1/4.

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