Just as a recovery from the recession appears at last to have taken hold in the U.S. economy, several of the world's stock markets have suddenly gone into a swoon.
Stock prices have been tumbling this week in Tokyo, in Mexico City, and on Wall Street, where record highs were being set scarcely more than two weeks ago.Over a span of eight trading days from June 8 through Thursday, the Dow Jones average of 30 U.S. blue chip stocks tumbled 130.01 points, or 3.82 percent.
The broader Nasdaq composite index for the over-the-counter market, where shares of many newer and smaller companies trade, stands at its lowest levels since Christmas.
Overseas, Japanese stock indexes slumped to their lowest readings since 1986, extending a lengthy bear market. In Mexico, meanwhile, one gauge of stock-price trends has fallen about 16 percent since the start of June, wiping out a large chunk of that market's dramatic gains since early 1991.
The markets' condition seemed to worsen precisely as the Federal Reserve issued one of its most upbeat appraisals in a long while of the state of the U.S. economy. "Economic activity continues to improve," the central bank's report concluded.
Analysts say there is an element of coincidence in the simultaneous market drops, as each country grapples with some special problems of its own.
Japan is caught up in what economist David Roche of Morgan Stanley & Co. called "a financially inspired recession that is much worse than its predecessor in the U.S."
Mexico, meanwhile, has been dogged by fears that a big new supply of one popular company's stock might be dumped on the market, and that trade negotiations with the United States might fall through.
In the United States, the main worry is that the Federal Reserve will stop pushing short-term interest rates lower now that a recovery has been successfully launched.
Many observers believe U.S. stocks also are showing symptoms of "election year jitters," in the words of John Shaughnessy, research director at Advest Inc. in Hartford, Conn.
Said Roche: "Ross Perot's campaign is going from strength to strength, with its appealing, folksy prescriptions for the country's economic ills, even though such prescriptions could spell serious trouble for the global economy."
Beyond external economic and political influences, however, analysts also say each of the falling markets looks to be going through a process of "correcting" prices that simply got too high.
Both the Japanese and Mexican markets rolled up spectacular gains in the 1980s. The U.S. market's Dow Jones industrial average has been acting pretty exuberant as well, more than quadrupling from its 1982 low of about 777 to its recent highs around 3,400.
For months now, analysts in large numbers have been warning that U.S. stocks looked dangerously expensive based on traditional measures such as ratios of stock prices to earnings, or stocks' dividend yields.
Recent readings on such yardsticks have equaled or exceeded extremes seen in the summer of 1987, when the market was headed for a dramatic fall.
As long as U.S. interest rates have kept declining, analysts say, investors were willing to keep buying stocks at those elevated levels.
With each drop in interest rates, market participants could imagine new possibilities for the future strength and duration of the economic recovery. Furthermore, falling rates diminished the appeal of interest-bearing investments that are the main competition stocks face in the battle for investors' favor.
But whenever the prospect arises that the Federal Reserve might have finished its credit-easing for this economic cycle, analysts say, such open-ended hopes get sharply curtailed.
At such moments, stock traders