The Dow has lost nearly 1,000 points since its peak of 2,722.42 on Aug. 25. Yesterday, it closed at its lowest point since April 6, 1986, when the average was at 1,735.51.
Stock exchanges were inundated with orders to sell stocks yesterday. At the New York Stock Exchange, an estimated 604.33 million shares changed hands; the previous one-day high was 338.48 million shares, a record that was set just last Friday.
"This is a worldwide financial panic of historic proportions," said Hugh Johnson, a market analyst for First Albany Corp. "The selling is coming from panicked individuals, institutional and foreign buyers, speculators, traders and conservative investors."
The panic continued after the U.S. markets closed. Early today in Asia, prices plummeted in Tokyo and Sydney, Australia, and trading was closed in Hong Kong until next Monday.
Analysts said the market's free fall was triggered by a high level of anxiety. Warranted or not, the concern persists that interest rates are rising, which will result in a higher inflation rate and a lower value for the
Adding to Wall Street's worries was a statement from Treasury Secretary James A. Baker 3d over the weekend that the United States may let the dollar fall even farther unless West Germany does more to stimulate its economy by lowering interest rates.
"The real problem is confidence," Johnson said. "There is a belief that cooperation between our major trading partners, Japan and West Germany, has all but shattered and that could start us down the road to a lower dollar, higher interest rates and a decline in the world economy. That may be the message that the stock market is issuing."
Traders and financial experts said that buyers of stocks were vastly outnumbered by those wanting to sell. Almost immediately after the start of trading at 9:30 a.m., buying completely evaporated. Investors who owned stock in many of America's biggest blue-chip companies suddenly were unable to sell their shares.
The result was deep drops in prices between trades. Bellwether International Business Machines Corp., for example, did not begin trading until more than an hour after the market opened, and when it did, it was selling for $10 a share less than it had at the close of trading on Friday.
The Dow Jones industrial average barely inched downward during the first 10 minutes after the opening, but the modest initial decline reflected a far more severe problem: Trading in many of the 30 issues that make the average was delayed by the lack of buyers.
After a terrifying first hour, the average had plunged more than 93 points, but 11 of the 30 Dow stocks still had not traded. Technically, openings were delayed by extreme "order imbalances."
The mountain of sell orders overwhelmed the floor specialists who are supposed to step in and buy shares for their own accounts to maintain an orderly market.
Such widely held issues as IBM, Exxon Corp. and Du Pont Co., valued by investors for their almost certain liquidity, or saleability, suddenly were illiquid. So, too, were Eastman Kodak Co., Sears, Roebuck & Co., Texaco Inc., Merck Corp., Goodyear Tire & Rubber Co. and Philip Morris Cos.
As buyers materialized at sharply lower prices, the decline in the industrial average quickly became more than 200 points.
"There was no buying whatsoever," said Don McKinnon, a senior vice president of equity trading and sales for Nomura Securities in New York.
By the start of trading in New York, the sell orders were so heavy that the trading of nearly half of the New York Stock Exchange's stocks had to be delayed.
"This was the worst market I've ever seen and I hope I don't see it again," John Phelan, chairman of the New York Stock Exchange, said at a news conference after the close of trading.
While refraining from saying that this was a panic situation, Phelan described yesterday's trading as "the nearest thing to a meltdown that I've ever seen. . . . We had a waterfall effect where selling begat selling. But at some point you have to reach bottom and a period of destitution."
Phelan, who coined the term "financial meltdown" a year ago, said the wave of profit-taking that began in the morning was amplified by big sell orders that were initiated by computer programs.
Throughout the day, Phelan said he was in contact with the Securities and Exchange Commission, U.S. Treasury Department, the Federal Reserve Board and the White House. He said the situation yesterday, while abnormal, did not warrant a closing of the exchange. "We thought that would have a far more adverse effect" on the market, Phelan said.
"We are fortunate that this is occurring at a time when the economy of this country has been very strong," he said.
Ironically, the wild decline came on a day when many large companies were releasing third-quarter profits. News tickers rattled off a stream of encouraging financial reports: at Bell Atlantic Corp., profits climbed almost 9 percent; Allied Signal Inc., up almost 17 percent; Tandy Corp., up 47 percent; Lotus Development, up 56.5 percent.
Caterpillar Inc. and Wang Laboratories, which lost money a year ago, cheerily reported that they had returned to profitability.
The earnings reports were ignored and the avalanche of selling continued.
As the last seconds of trading ticked off at the New York Stock Exchange, frazzled specialists and floor brokers let out cries of relief - or anguish.
Throughout the day, exchange members never had a second to rest. Clerks who wrote down orders as they came to specialists, the people on the exchange floor who bring buyers and sellers together, all seemed to have been operating in fast motion. Brokers ran from station to station, trying to get orders in while there was time.
The level of trading was so heavy that the big electronic ticker at the exchange was as much as two hours and 15 minutes late in reporting stock trades.
Outside the stock exchange building, a long line of tourists waited to get into the gallery overlooking the trading floor to see the values of their stocks, pension funds and mutual funds plummet.
Specialists and brokers worked into the night trying to get their orders squared away. Whenever someone left the exchange through the member's entrance for a break, he or she was surrounded by reporters and curious onlookers wanting to know what a crash feels like.
Tourists clogged Broad Street, including one teenage girl who climbed a lamppost for a better view while clinging to a copy of an afternoon newspaper with the headline: "Wall Street Goes Mad."
At one point, a man watching the scene yelled: "The Reagan Revolution is Over!" and "Down with Yuppies!"
Rumors were circulating on Wall Street that many specialists at both the New York and American Stock Exchanges had lost millions of dollars yesterday and would have to sell their seats to raise cash. The New York exchange said it knew of no one in a state of financial ruin.
One clerk for a NYSE specialist, who did not give his name, said his company has lost $1 million a day for the past three trading days.
"It's nuts, absolutely crazy," said Ric Gardner, who trades options on the New York Stock Exchange index. "Basically, people are just trying to survive."
Michael Vitale, a clerk for the Pershing division of Donaldson, Lufkin & Jenrette, said the atmosphere was chaotic.
"People were trying to get their orders in before the market change and, with the expressions on their face, you thought they would pop a vein or something," he said.
Investors and analysts were so shocked by the market's plunge that few would venture to say if the worst was over.
"This market almost has a dream-like, surreal quality," said Michael Howe, director of research for Butcher & Singer Inc. "No one really understands what is happening."
Many experts, however, did find encouragement in the fact that the selling was prompted more by negative sentiments among investors than by any radical changes in the economy.
Because of that, they said there is the possibility that the 508-point decline could be explained as a freak end of a most unusual bull market.
"Are we at the bottom? I don't know how to answer that question after today," said Abby Joseph Cohen, a market analyst for Drexel Burnham Lambert Inc.
"What happened was totally divorced from the strong economic picture," she said. "We still feel that this is a strong, long economic cycle. We're many quarters from a recession and corporate profits have not hit their peak. We're not pulling our hair out. But what we are saying is maybe what we have here is a great opportunity to buy."
Cohen noted that Unisys Corp. shares declined by $7 to $30.75 yesterday, despite the fact that the Blue Bell company reported profits in the most recent quarter that were double those of a year ago.
"At $103 a share, IBM looks to me to be a real bargain," she added. ''Could it get cheaper? Yes, it could. I have no good way of estimating how far the market could go on the downside."
Many analysts said that the bond market held up surprisingly well yesterday, which bodes well for stocks. The price of long-term Treasury bonds held up, suggesting that anxiety over interest rates may be exaggerated.
What happens today in the stock market will depend on what happens in Tokyo and London, said analysts and traders who expect major repercussions in other markets.
"Monday, the European markets were down 10 percent and New York more than 20 percent. So why not the same for Tokyo" today, said Ryoji Tanaka, a vice president of trading for Nikko Securities in New York.
In early trading today in Tokyo, the Nikkei stock average declined by 6.3 percent, or 1,616 points, to 24,130.56.
The stage was set for a bad day on Wall Street yesterday even before trading started. Friday's one-day plunge of 108.36 points for the Dow Jones index created fallout in both Asian and European markets. The Tokyo Stock Exchange opened trading Monday with heavy selling, which spilled into profit- taking in London and other European markets.
Tanaka said the Japanese market could decline by as much as another 10 percent. Further weakness in Japan would hurt the U.S. market because, if foreign investors are sustaining losses at home, they might begin to pull back
from the U.S. market, thus removing an important prop to our market.
Another key element to the market now is the direction of investing from individuals. Analysts said that if small investors panic and pull more money out of mutual funds, they could exacerbate the market's current weakness.
"Mutual funds is where the potential for more trouble is," said James Wright, chief investment officer for Banc One Asset Management of Columbus, Ohio. "Individuals can just pull all of their money out of the market, and that's scary."
Brokers and mutual-fund managers said there was heavy selling by individual investors. At T. Rowe Price Associates, a Baltimore mutual-fund company that manages $15 billion in assets, the number of calls from shareholders has increased from 3,700 a day to about 5,000 a day, said Steven Norwitz, a company spokesman.
"A week ago, people were calling mainly to have their hands held," he said. "But at the end of last week, about half the calls were resulting in trades."
Many shareholders were taking money out of stocks and bonds and putting cash into money-market funds until the dust settles in the financial markets, Norwitz said.
The drop in the market has been as unsettling to professionals as to individuals.
"Not only do I have to allay the fears of my office's retail clients, who number 18,000, but I have to do the same with the 40 brokers I have under my control here," said Donald French, manager of the Philadelphia office of Legg Mason Wood Walker Inc. "Fifty percent of them have never seen a bad market."