By lunchtime yesterday, the Dow Jones industrial index was down 100 points and threatening to wipe out all the 119-point gain seen on Tuesday. The market recovered some ground in afternoon trading and the Dow closed at 7794.4, down 79 points.
The previous day's rise was driven by reports of a putative pounds 77bn merger between SmithKline Beecham and American Home Products.
"It's another wild and woolly day, but I think we're still basically in the bull market. Eventually the bulls are going to win," Al Goodman of AG Edwards commented. He blamed yesterday's slide on the news from IBM, fresh worries about Indonesia as well as scandal allegations hitting the White House.
IBM revealed weak profits during the last quarter of 1997. The company reported that fourth-quarter profits rose by 3.4 per cent with some strength in its computer service division offsetting declines in personal computers and other hardware.
The results fell short of analysts' expectations. Additionally, IBM warned results would similarly fall short in the first quarter of this year, in part because of slackening demand in Asia and the strong dollar.
"A large company like IBM tells you what the direct impact of Asia on sales is, and it hits you like a very blunt object," remarked Hugh Johnson, chief investment officer at First Albany.
The figures from IBM contrasted with those from Compaq computer. Compaq, listed on the Nasdaq exchange, posted gains in its stock after reporting a 36 per cent surge in fourth-quarter earnings.
Analysts agreed that any worsening of the nascent sex-scandal crisis in Washington could further depress the market over coming days.
The continuing crisis among the Asian countries, especially Indonesia, also depressed sentiment. Earlier, the Indonesian rupiah plunged 15 per cent to a record low against the dollar after
President Suharto announced plans to serve a seventh term in office. The rupiah's decline pulled down most other South-east Asian currencies, suggesting that a regional recovery may not come soon.
Indonesia was sucked deeper into the financial and political morass on Wednesday by worries of indebtedness and instability. Fresh calls for President Suharto to quit surfaced, this time from researchers attached to a state institution.