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Little panicking over market `correction'

Traders and investors at Salt Lake's brokerage firms didn't panic Monday as the stock market crashed, and their courage seemed to be paying off Tuesday as U.S. markets went on a roller coaster ride that initially took them way down, only to quickly shoot back up.

The Dow Jones Industrial Average recovered from a 178-point drop early Tuesday to move into positive territory, helped by news that consumer confidence in the economy fell sharply in October and that IBM was buying back its shares.The Dow fell below 7,000 Tuesday morning before staging a rally on the latest sign of economic weakness. The thinking was that the Federal Reserve wouldn't move to raise short-term interest rates anytime soon.

At noon on Wall Street, the Dow was up 113.70 at 7,274.85. London's Financial Times-Stock Exchange 100-share index closed down 85.3 points, nearly 1.8 percent, at 4,755.4.

Hong Kong's market, which started the chain-reaction global sell-off last week, melted down again Tuesday, losing 13.7 percent.

While it remained to be seen where stocks would end this week, many market watchers were impressed at the lack of panic during Monday's record-breaking 550-point Dow melt-down, which caused trading to be halted for the day when "circuit breakers" kicked in.

"It was a relatively orderly market considering it was a record decline," said Sterling Jensen, president and chief executive officer of First Security Investment Management Inc., following the close Monday night. "I've talked to some of our clients and reassured them that this just takes us back to where we were on May 5, when the Dow first crossed the 7,200 level."

Analysts generally agree that it was the institutional money managers, not small investors, who drove prices down in the massive sell-off.

While the decline in the Dow got the most attention Monday, broad market indexes also sank. The Nasdaq Composite Index lost about 7 percent of its value before trading was halted.

In Utah, Lori Rogerson, a financial consultant in the Salt Lake office of Smith Barney, said late Monday that the brokerage as not getting the panicked calls from investors that might might have been expected.

"I had one client who called and said, `Hey, this is the buying opportunity I've been waiting for!' She bought shares of Travelers and Boeing," he said.

"We've done a lot of client training about downside risk and not to overreact to it."

Tony Johnson, vice president of the Salt Lake office of Dain Bosworth, said his firm weathered the storm quite well, fielding few calls from panicked investors.

"Most people we've talked to understand this is a short-term phenomenon," said Johnson.

Why did investors take this "Black Monday" in stride when the one 10 years ago caused thousands to swear off investing in the stock market forever?

For one thing, the market's gains in recent years means that Monday's 550 point drop was, in percentage terms, a relatively modest decline of only 7.2 percent. Black Monday a decade ago bled off 22.6 percent, about half a trillion dollars, of the market's value.

"I wouldn't even call what happened (Monday) a crash," said Jeff Thredgold, president of Salt Lake-based Thredgold Economic Associates.

"In percentage terms, it wasn't that big a deal. We're still well up (11 percent for the Dow and 18 percent for the S&P 500) for the year."

Thredgold noted that the decline in stocks could actually be good news, assuming the market doesn't drop much further. It certainly was for bond holders Monday as stock investors fled to bonds.

"Long-term interest rates could now likely trade down to 5.5 percent, the lowest in 30 years. Anyone looking to close on a mortgage has to be smiling," said Thredgold.

Johnson of Dain Bosworth agrees. "There's no change in the interest rate, no change in corporate earning power, no inflation . . . it's just a classic sell-off. I've had several people call and give me buy orders. That's smart if `tomorrow' is not your investing time horizon."

Floyd Howell, an investment counselor in the Salt Lake office of Piper Jaffray, specializes in stocks of Utah companies. He said those shares were relatively unhurt in Monday's decline.

He noted that First Security Corp. was down less than two points at the close Monday and is only off its all-time high by four points. Zions Bancorp was off only a quarter-point while PacifiCorp, parent company of Utah Power lost less than a point. Questar was down just under two points.

"This hasn't shaken me a bit," said Howell who, at age 74, believes he may be the oldest active stockbroker in Utah. "I've seen it all in this business over the past 44 years and I'm a perpetual optimist."

Optimistic, yes, but Howell adds that while he has no fears for stocks of Utah companies, he has been cautioning investors against putting a lot of new money into the overall market. "The market has just been too high," he said.

Since reaching its peak of 8,259.31 on Aug. 6, the Dow had declined 13.3 percent as of Monday, making it the first "correction" of more than 10 percent since October 1990. And it was headed lower in early trading Tuesday.

U.S. markets weren't alone in plunging from the heights; they had plenty of company as stocks dropped all over the world, touched off by further declines in Hong Kong where the global downturn originated last week.

How low can the U.S. market go? No one knows for sure, of course, but Jensen at First Security was willing to give it a shot:

"I would suspect this market could correct up to 20 percent, which would take us to 6,600," said Jensen.

"That would be the worst-case scenario that I see. My feeling is that the worst damage has been done, but it will take a few months to get through this. But several years from now, we'll look back on this and see it as just a blip on the continuing bull market."

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Additional Information

The Dow's down days

The Dow Jones Industrial Average had it worst point drop ever on Monday.

The biggest daily point drops in the Dow:

Date Point Drop Percentage Drop

Oct. 27, 1997 554.26 7.2

Oct. 19, 1987 508.00 22.6

Aug. 15, 1997 247.37 3.1

June 23, 1997 192.25 2.5

Oct. 13, 1989 190.58 6.9

March 8, 1996 171.24 3.0

July 15, 1996 161.05 2.9

March 13, 1997 160.48 2.3

March 31, 1997 157.11 2.3

Oct. 26, 1987 156.83 8.0