World stock markets burst out of 'blue Monday' blues

"Blue Monday" -- it could have been the title of a financier's suspense film, starring self-styled market forecaster Joseph Granville and a cast of several international stock exchanges and thousands of investors.

But Wall Street refused to follow the script, and on the strength of that defiance, stock markets around the world bounced back Sept. 29 from what for some were record losses the day before.

The London and Tokyo Stock Exchanges both rebounded completely Sept. 29, recouping their previous day's record losses. The Sydney Stock Exchange likewise recovered and selling on the Hong Kong Stock Exchange moderated. The Tokyo market scored its biggest advance in its 31-year history.

Foreign investors stopped chewing their pencil stubs after the Dow Jones industrial average recovered from a 16-point loss early Sept. 28 and went on to post an 18.55-point advance. On Tuesday morning, the advance continued although volume was relatively light since the day was a Jewish holiday.

The advances came in the face of a renewed prediction by Mr. Granville that the markets would continue to fall. Granville, who has developed a somewhat flawed reputation on Wall Street for calling important turns in the market, had predicted that Monday would be the worst day in the stock market's history.

Now that the ticker tape has been swept away, Hildegard Zagorski, assistant vice-president of Bache Halsey Stuart Shields Inc., says investors "should learn to be wary of people who make these dramatic predictions. No one is ever absolutely right."

James Balog, of Drexel Burnham Lambert Inc., a brokerage house, points out, however, that "the scare stories don't work unless there is a fertile ground for them."

Some of this ground has been "fertilized" by concerns that US policies -- particularly the Federal Reserve Board's tight money polict -- will trigger a major world recession, says Nick Bratt of the Scudder International Fund, a mutual fund with $60 million invested in overseas stocks markets.

When excitment over Granville's forecasts subsides, says Mr. Balog, investors once again will have to look at the fundamentals underlying the market. Among them: concerns about high interest rates, deficits, and a faltering economy.

Wall Street was cheered somewhat on Tuesday when two major banks cut their prime interest rate from 19 1/2 to 19 percent. Says Donald C. Miller, vice-chairman of Continental Illinois National Bank & Trust, one of the banks reducing its prime rate, the bank sees " a continuing trend toward lower short term rates."

Still, as one bond trader points out, "It will take time for the bond market to regain its confidence." The bond markets are sure to be tested next month when the US Treasury begins casting about for the $40 billion it hopes to borrow in the fourth quarter.

Wall Street also expects the market will have to reassess its view of the economy's propects for future growth. For Example, Smith Barney, Harris Upham & Co. believes that dividend growth will be more difficult to achieve in the months ahead, and is urging its clients to buy stocks in companies whose financial positions will permit them to at least maintain a moderate degree of dividend growth even if earnings drag.