The Dow rose over 100 points this morning before falling into negative territory, eventually shed 66.17 points or 0.78 percent to close at 8,366.04.
"What happened today is because of worries about what is going to come out of Brazil since Brazil [ President Henrique ] Cardoso will be make a speech about what fiscal measures the country will take," said Arun Kumar, senior U.S. equities strategist at Lehman Brothers.
"That is the only thing I can think of to make the market react the way it reacted today." The country's central bank denied the claims.
Still, the development in Brazil may only be a bump in the market's road, and should not stall the U.S. economic recovery, analysts agreed.
"My feeling about the market is 'up, up and away,'" said Norma Yaeger, president of Yaeger Capital Markets. "Technology stocks are really pulling this market higher--the Nasdaq is the place to be, isn't it."
Indeed, the Nasdaq index has surged over the past several days, fueled by stronger-than-expected earnings reports--despite the global economic instability. Most bellwether technology and Internet stocks, including Intel, Microsoft, and Yahoo, have easily surpassed Wall Street's expectations, giving the market a greater sense of optimism.
The technology-heavy Nasdaq index today lost 7.31 points, just nearly half a percent to close at 1,717.67.
"There was an over-anticipation of how bad the earnings were going to be," said Lawrence Silver, an analyst at the investment banking firm of Raymond James. "Maybe there wasn't as much of an impact internationally yet on these companies."
Silver pointed out that most technology companies were well-diversified overseas--not just focused on Asia or Russia, two of the regions hardest hit by the recent economic turmoil. "These areas are a smaller part of these companies total international dependence," he added.
Analysts also agreed that the global economic environment is likely to change, as stronger measures are taken to nurse damaged economies back to health.
"I think that Japan has taken some very positive steps to fix its house," said Yaeger. "And if the Japanese market starts to recover, we can overcome the fear that we would not be able to sell as many computers abroad."
Interest rate cuts over the past month by the U.S. Federal Reserve, as well as cuts in Italy and Spain, are seen to bring a sense of confidence back to investors.
"There are some signs internationally of solving some of the economic crisis and the time to invest in the market is not after the problems have been solved," said Silver. "You have to buy before they are solved, when you can get some good buys."
Some analysts still speculate that the Dow will hit 10,000 in 1999.
"If we can keep rates down, we will have an expansion of the economy that could help the Dow reach 10,000 next year," said Yaeger. "When a company can borrow at lower rates, you allow them to expand at a lower cost, and they can be more competitive in foreign markets."
Silver added that at a Securities Industy meeting last month, most analysts predicted the market would recoup most of its losses incurred during this latest market slump by the end of 1998.
"The question really is how quickly can we make up the most of those losses and move forward," he said.
Nonetheless, analysts say the market may continue its volatility as investors cash out their positions to prevent further losses--before the next big dip.
"Many money managers were caught with their pants down because they were fully invested when the Dow fell 500 points," said Yaeger. "You are going to see some selling to get cash so that if the market pulls back, they will have cash to invest."