DATE: Tuesday, October 28, 1997             TAG: 9710280290

SECTION: FRONT                   PAGE: A1   EDITION: FINAL 

SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 

                                            LENGTH:  101 lines

DOW DIVES ON BLUE MONDAY 554-POINT FALL SETS RECORD\ 7% DROP PALES NEXT TO BLACK MONDAY'S TRADING IS CURTAILED,THEN IS HALTED EARLY

Chicken Little had his day Monday in the U.S stock market, as jittery institutional investors dumped equities and pushed the Dow Jones industrial average down 7.2 percent.

Following a collapse in stock markets in the Far East, U.S stocks suffered their worst point drop since the October 1987 stock market crash. The 554-point drop in the Dow Jones industrial average, a composite of 30 major stocks, triggered a circuit breaker that closed equities trading for the first time since the attempted assassination of President Reagan in 1981. Trading had been halted for 30 minutes earlier in the day.

It was the worst single-day point drop in Dow history, exceeding the 508-point drop of Oct. 19, 1987 - known today as Black Monday. However, in 1987, the Dow lost 22 percent of its value in one day; Monday's drop was only the 12th worst in percentage terms.

Call it Blue Monday.

The widely watched indicator is still up more than 10 percent so far this year, which puts it on par with historical annual gains in stocks.

``This thing really shouldn't have come as a surprise to anyone - we've been talking about a correction for months,'' said Monroe Nash at A.G. Edwards & Sons Inc.'s Norfolk office.

``The market was just very expensive,'' said Wayne Wilbanks, a Norfolk money manager. ``It needed a correction. You just hate to see it all in one day.''

Essentially, the problems in Asian markets catalyzed the concerns of U.S. money managers that the domestic markets may be overvalued.

``Nobody likes their portfolio to go down in value,'' but Monday's fall is within the realm of normal market fluctuations, said George Shipp, an equities analyst with Scott & Stringfellow Investment Corp. in Norfolk. ``What we've got is a normal correction compressed in a very short time frame. . . .

``It's like a cold splash of water in the face,'' Shipp added. ``People need to be aware the market can go down.''

And today may not bring immediate relief, especially if Asian market activity continues to be an indicator for the Dow. Hong Kong's stock exchange lost another 11.45 percent of its value today, coming on the heels of Friday's 10.4 percent drop.

``The scary thing is the market never closed, it just kind of shut off,'' said Thomas Love, Norfolk branch manager for Wheat First Butcher & Singer.

In other words, the sell-off could continue this morning until institutional investors such as mutual funds decide stocks are inexpensive enough to begin buying again.

Wilbanks, president of Wilbanks, Smith & Thomas Asset Management Inc., expects the market will finish the sell-off by late today. ``You'll see some real bottom-fishing tomorrow if the market goes down another 300, 400 points,'' he said Monday.

``What's going on in Southeast Asia doesn't have an immediate effect on our companies here,'' Wilbanks said.

``If you look at the big picture in the U.S., this is not a thing to panic about,'' Nash said of the Asian markets crisis. ``It could be a buying opportunity. . . . People that are not averse to risk should be buying.''

There doesn't appear to be any fundamental reason for Monday's correction.

``The bond market isn't weak, inflation isn't soaring, corporate earnings are good,'' said Larry Waters, Virginia Beach branch manager for Scott & Stringfellow. ``It doesn't make sense when you look at the fundamentals.''

Indeed, there may even be a silver lining to the Asian market problems. The bond market rallied Monday, pushing interest rates down, perhaps sensing that troubles in Asian economies could ease inflationary pressures in the United States.

If Asian currencies go down, it means that a dollar will buy more labor and more goods in those markets, Shipp said.

``This will probably keep (Federal Reserve Chairman) Alan Greenspan from pulling the trigger on a rate increase,'' Nash said.

Local investors, like most individual investors everywhere, sat on the sidelines. Officials at local brokerages said most callers just wanted reassurance.

``I haven't had any sellers,'' Waters said. ``I had some people come in this morning to buy and they got whupped.''

Monday's selling was driven by institutional investors, like mutual funds and insurance companies. Given all the speculation about how overvalued U.S. stocks had become, they were skittish to begin with and just needed a little push to start selling. The Asian collapse, which started last week in Hong Kong, was the push.

``What can you do? They were looking for a correction. Now that we've got one everybody's wondering why,'' Waters said. ``It's like a big snowball, once it gets rolling, it's hard to stop.''

Adding to the selling pressure, many mutual fund companies close their fiscal year at the end of September and spend October locking in profits and minimizing losses by selling their losers, Shipp said.

In the end, Monday's fall might just be another stumble in the stock market's upward climb.

``Over time the market has tended to go up,'' Shipp said. ``Ten years from now a 500-point slide might not seem like much, but right now, 10 minutes after the close, it doesn't look good.'' ILLUSTRATION: Color AP photo

A trader in New York watches the Dow inch down...

Graphic

Putting Monday in perspective...

For complete copy, see microfilm KEYWORDS: U.S. STOCK MARKET

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