Futures Markets: Stock-Index Prices Have Record Drop In Trading Frenzy
Stock-index futures prices plunged a record amount in frenzied trading that left market professionals in Chicago and New York reeling and fearful of further price declines today.</br></br>The stock-index free fall was fueled throughout the day by arbitrage-related trading tied to stocks, which traders said largely accounted for the more than 86-point record drop in the Dow Jones Industrial Average to 1792.89.</br></br>A sharp drop in bond futures prices, triggered by fears that inflation may be rebounding, sent the stock indexes sliding at the opening. Comments from West Germany's central bank that it wasn't going to cut its discount rate depressed prices further. Several commodity market speculators, including two large commodity funds, also were heavy sellers early in the day.</br></br>As the futures began trading at a discount to the underlying cash index, arbitrage trading, in which professional traders sold stocks and bought back the futures at depressed prices, sent the stock market down further.</br></br>The S&P contract for September delivery traded as much as 1.20 below the cash index during the day, compared with its theoretical value of about 0.15. The September contract closed at a discount of nearly 1.30, indicating that traders are expecting heavy selling tied to margin calls today, said Gary Dorsch, an analyst with G.H. Miller & Co.