Stock prices, which were battered last week by fears of rising interest rates and the war between Iran and Iraq, plummeted again today for the same reasons.
The Dow Jones industrial average of 30 stocks fell 18.17 points to 921.93, the biggest one-day decline in that closely watched barometer since March 24, when the index tumbled 19.71 points to 765.44. On Friday the index fell 15.87 points.
Jerry Hinkle, manager of the trading department at Sanford C. Berstein & Co., said today's sharp decline "was mostly a retail-oriented selloff. John Q. Public was there on the sell side of the equation," while most of the big institutional stock owners such as pension funds and insurance companies were relatively inactive today.
In the last six trading days, the Dow average has fallen nearly 42 points. Today's close was the lowest the average has been since July 25, when it closed at 918.09.
Curiously, while stock prices were falling -- the Dow average closed at its lowest level of the day -- bond prices were steady today.
Bernard Harmon, first vice president of Drexel Burnham Lambert Inc., said that in general bond prices were up about $2.50 on a face value of $1,000. Because the interest rate a bond pays is fixed, when interest rates rise, the price of bonds fall and vice versa.
Harmon noted that bond prices fell sharply last week on the news of rising market interest rates, the Federal Reserve's increase in its discount rate and the report Friday from the Federal Reserve that the money supply had increased $2.5 billion in the week ended Sept. 17. Harmon said that today's steady prices show that the bond market already had absorbed the effects of last week's news.
He said that trading was light and that prices were helped by a Federal Reserve intervention in the market to supply reserves. Demand for funds is usually strong near the end of a quarter for technical reasons, and the Fed had been expected to supply reserves to the banking system last week. The central bank waited until today.
Harmon said bond prices are near the lows reached last spring and that bonds are yielding returns now that are about 3 percentage points above the rate of inflation. Government bonds are returning about 12 percent, while some top-flight corporate issues are around 13 percent.
On the battered New York Stock Exchange 1,573 stocks declined in price today while only 139 closed higher than on Friday.
The New York Stock Exchange index closed down 1.73 points to 71.26, while on the American Stock Exchange the index fell 10.08 points to 324.38.
Nearly 46.8 million shares changed hands on the NYSE, compared with 49.5 million on Friday.
The most active stock on the New York exchange was International Business Machines. About 672,000 shares of IBM changed hands on the floor of the exchange. IBM closed down 87 1/2 at 63 3/4. Sony Corp., the second-most-active stock, closed down 1/4 at 14 1/2, while the third-most-active stock, Xerox, closed unchanged at 64 1/2.
Hinkle of Sanford Bernstein said that the big institutional investors appear to be staying away from the stock market because alternative investments such as municipal bonds are more attractive than stocks temporarily.
Nevertheless, while the institutions are not big buyers of stock, they are not big seller either. The recent sharp increase in interest rates and the seeming inability of the Federal Reserve to get a handle on the rising money supply is "the kind of news that tends to shake up individuals more than institutions," Hinkle said. "The institutions are more apt to sit back and take a wait-and-see attitude."
Despite the sharp decline in stock prices in recent days, the Dow Jones average remains well above levels earlier this year. The stock market took off on a sustained climb in mid-April that did not end until early this month. The Dow average surged from the 750 range to the 950 range. As a result, most investors are still better off today than six months ago.