NEW YORK (CNNfn) -- Weak leadership in the bond market, earnings warnings and concerns about the U.S. dollar on Friday sent the Dow Jones industrial average to the second-worst point decline in its history.
In a selloff that left few broader markets unscathed, the Dow lost 247.37 points to close at 7,694.66. The 3.11 percent plunge, while less significant in percentage terms, was the largest point drop since the 508-point loss on Oct. 19, 1987.
Consider the steepest blue chip dips: Procter & Gamble (PG) lost 7-3/16 at 137-1/4; Sears (S) fell 3-1/16 to 56-1/2; General Electric (GE) fell 3-3/8 at 63-3/8; Hewlett-Packard (HWP) dropped 3-13/16 to 66-1/16; and 3M (MMM) retreated 3-1/4 to 91-1/2. Of the 30 components, only Eastman Kodak (EK), up 1/8 at 63-1/4, finished on positive ground.
Market players were quick to label the selloff a correction. But while several said they expect stocks to sink a bit more, few are talking about a fundamental change in a stock market that has set 39 record highs this year.
"I think we have a little bit of a correction here," said Scott Pape, portfolio manager at Loomis Sayles. "The market was up just over 30 percent (for the year) as little as two weeks ago. A 5 percent correction is not really all that unusual."
Concerns initially rose as the dollar lost ground against the German mark. But adding to those currency concerns came the expiration of equity and index options, an event known as "double witching" that can create volatile swings as traders make last-minute moves to unwind their positions.
Among the key broader market indexes, the S&P 500 lost 23.96 at 900.81, followed by the Nasdaq Composite, off 24.66 at 1,562.03, and the American Stock Exchange, down 4.88 at 635.51. On the New York Stock Exchange, declines led advances, 2,125 to 714, as volume topped 539 million shares.
For the week, the Dow lost 336.56 points, or 4.37 percent -- the worst weekly point drop ever. Meanwhile, the S&P 500 dropped 3.63 percent, the Nasdaq fell 2.34 percent and the American Stock Exchange gave back 1.67 percent.
Surprisingly, bonds remains largely unaffected by the weakness. While the bond market stumbled early on and provided stocks with practically no support, the 30-year Treasury ended the day with a slight rise of 2/32 in price, a move that lowered the yield to 6.54.
The decline for stocks came at the end of a week in which stocks and bonds reacted with indifference to government reports that consumer prices, wholesale prices and industrial production are virtually free of inflationary pressures. Unlike previous economic releases, financial markets did not bounce.
"This is the first time in months that we had great news and the bond market didn't celebrate," said Don Hays, chief strategist at Wheat First Butcher Singer. "This time it took fantastic news and had a very lukewarm reception."
Hays, whose firm has raised its cash position to 30 percent out of concern that the market is overvalued, said the selloff could be the result of concerns including strength in the economy during the latter part of the year and labor unrest. The Teamsters strike that has crippled United Parcel Service could persuade other unions to call their own strikes, forcing companies to pay higher wages, he said. Higher wages would ultimately lead to inflation.
Looking at noteworthy issues, Gillette (G) rattled consumer issues and the rest of the stock market when it warned that weak sales at its Braun unit will cut into profits. Morgan Stanley, Merrill Lynch and CS First Boston quickly lowered estimates for 1997 and 1998 and the stock ended the day down 4-3/16 at 85-7/8.
That decline cut into related issues. Along with Procter & Gamble, Colgate-Palmolive (CL) unloaded 4-15/16 at 65-1/4, while Clorox (CLX) gave up 4-15/16.
Elsewhere, auto-parts retailer Pep Boys -- Manny, Moe & Jack (PBY) fell 6-1/16 to 27 after a disappointing quarterly profit of 47 cents a share convinced Merrill Lynch to cut its rating on the stock,
Loews (LTR) also shed 2-1/4 to 97 on a published report that it incurred $467.4 million in gross investment losses from a multi-billion dollar bet against the bull market.
Delta Air Lines (DAL) edged down 11/16 to 87-1/16 following an announcement that Leo Mullin will take over as president and chief executive of the nation's No. 3 carrier. Mullin, vice chairman of Unicom, a Chicago-based utility, is the first outsider ever hired to the top position at Delta.
Not all issues declined, however.
Columbia/HCA (COL) advanced 1-1/16 to 32-3/8 on a published report that HealthSouth wants to buy large chunks of the hospital-management concern. Columbia is the subject of a federal investigation into alleged billing fraud. HealthSouth (HRC) moved up 5/16 to 23-15/16.
And W.R. Grace (GRA) gained 2-1/2 at 72 after agreeing to merge its packaging unit in a $5 billion deal with Sealed Air. Shares of Sealed Air (SEE) jumped 6-9/16 to 53-1/8.
-- David Rynecki
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