Dow ends wild day down 55

December 6, 1996: 5:43 p.m. ET

Greenspan sent stocks swooning, but investors regained their composure

NEW YORK (CNNfn) -- On first glance, stocks finished Friday in horrible shape. But looks can be deceiving.
     Although the markets closed down sharply, stocks still regained more ground than some thought possible early in the day. Investors eventually got past their initial panic over comments made by the Federal Reserve Board chairman suggesting the markets were overvalued.
     After tumbling 144 points in the first 30 minutes of trading, triggering electronic trading curbs and alarming small investors, the Dow Jones industrial average managed to right itself and recovered almost two-thirds of that loss, closing down 55.16 to 6,381.94.
     The measure lost 139.76 points, 2.14 percent, on the week -- one of the most volatile of the year.
     On the New York Stock Exchange declines trounced advances, four to one, as volume topped 506 million shares. The S&P 500 fell 4.78 points to 739.60, the Nasdaq Composite lost 12.44 points to 1,287.68, and the American Stock Exchange fell 4.33 points to 585.70.
     Analysts had expected the declines to be even worse, but investors hungry for bargains returned to the market and pushed stocks off their lows.
     The frenzy was triggered by Fed Chairman Alan Greenspan. In a speech Thursday night, the powerful central bank chief warned that "irrational exuberance" in the stock market was cause for concern. Greenspan struck a nerve by suggesting that Wall Street is riding a speculative bubble -- a possibility that undermined confidence in markets around the world.
     Wall Street's fall followed heavy losses in London, Paris and Frankfurt. Tokyo stocks posted their biggest decline of the year.
     After digesting Greenspan's comments, analysts determined that none of the fundamentals in the economy had changed, and the Fed was unlikely to take any action that might disrupt investor confidence.
     In addition, analysts said that investors have been looking for an excuse to sell after a remarkable run this year.
     "No one should interpret the remarks as being a prelude for the Federal Reserve raising the Fed funds rate at the December or February meeting. That's not going to happen. If that was going to happen, the chairman wouldn't have made a speech to puncture the exuberance," Wayne Angell, chief economist at Bear, Stearns, said.
     A soothing influence on Wall Street was the Labor Department's monthly jobs. It showed non-farm payroll jobs grew by just 118,000 in November and the nation's unemployment rate rose to a four-month high at 5.4 percent. Those two figures suggested that the economy is slowing down, allaying some fears about inflation and rising interest rates.
     The bond market was surprisingly calm despite swirling storm around it. The price of the Treasury's long bond fell just 2/32 to yield 6.51 percent.
     Among the stocks making news, Dow components: General Electric (GE) lost 1/4 to 97-7/8, while IBM (IBM) tumbled 2-3/4 to 155-3/4. Boeing (BA) lost 3/4 to 95-5/8, and Coca-Cola (KO) shed off 1/4 to 49.
     Philip Morris (MO), however, managed to reverse an early slide and rise 1-1/2 to 109-3/8. AT&T (T), likewise, bucked the trend, gaining 1/8 to 38-5/8,
     In general the technology sector fared better than the overall market. Shares of Micron Technology (MU) inched up 1/8 to 34, while Microsoft (MSFT), conversely, inched down 1/8 to 152-7/8. Dell Computer (DELL) jumped 2-1/4 to 113-1/2.
     Shares in Gateway 2000 (GATE) jumped 2-5/8 to 61, while Digital Equipment Corp. (DEC) fell 1-1/8 to 39-3/8, and Compaq Computer (CPQ) remained level at 84-1/4.
     Informix (IFMX) looked attractive to bargain hunters, rising 1-3/8 to 25-1/8.
     Advanced Micro Devices (AMD) also benefited from the rest of the market's volatility. Its stock picked up 2-5/8 to 26, one day after announcing it would lay off 250 workers.

-- Scott Benjamin