Vertigo on Wall Street
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YORK (CNNMoney.com) Stocks ended with
slim declines Friday, as investors fought back from a decline of as much as 697
points on the Dow amid the global market meltdown.
markets remained tight, although short-term lending showed some improvement
from recent days. Treasury prices fell, raising the corresponding yields. The
dollar gained versus the yen and fell against the euro. Oil, gas and gold
Jones industrial average (INDU) lost 128 points, or 1.5%, while the Standard
& Poor"s 500 (SPX) index lost 1.2%
composite (COMP) ended 0.3% higher, following a seven session losing streak.
week, the Dow fell just over 1,874 points, or 18%, its worst weekly decline
ever on both a point and percentage basis. Wall Street lost roughly $2.4
trillion in market value during the week, according to losses in the Dow Jones
Wilshire 5000, the broadest measure of the market.
finance ministers from the Group of Seven (G-7) nations said that exceptional
steps are needed to ease the global financial crisis and get money flowing
first five minutes of trade Friday the Dow plunged 697 points, falling below
7,900 to the lowest point since March 17, 2003. The Nasdaq and S&P also hit
more than five-year lows. But stocks recovered abruptly, with the Dow erasing
losses. The afternoon saw the Dow make violent swings back and forth across the
breakeven line, toppling as much as 600 points and rising 322 points.The Dow
has now tumbled for eight consecutive sessions, losing nearly 2,400 points, or
22%, as panicked investors ditched stocks across the board.
gripped the global markets as well, with the Japanese Nikkei tumbling 9.6%
Friday and the London FTSE down 8.9%. The global selloff kept the pressure on
U.S. markets Friday.
magnitude of what"s going on is unprecedented and people are frightened,"
said Robert Philips, senior portfolio strategist at BLB&B Advisors.
have plunged despite a series of efforts on the part of the government to
unfreeze the credit markets and get money flowing through the system again."Fear
is feeding upon itself and nothing the officials have done to this point seems
to stem the tide," said Ryan Atkinson, market analyst at Balestra Capital.
this week, the Fed announced an emergency rate cut, coordinated with banks
around the world. The central bank has also pumped billions into the system.
banks of the world have been flooding the markets with liquidity, but banks are
hoarding cash," Atkinson said. "This is the lynchpin of the entire
financial system and as long as this is still going on, the markets will be
driven by fear."
President Bush said that the government will continue to work to resolve the
economic crisis to return stability to the markets. He is hosting a meeting
with G-7 Finance Ministers early Saturday morning, with a statement expected
shortly after. (Full story)
House Democrats are meeting Monday to discuss a potential second economic
stimulus package, although House Republicans are reportedly skeptical of a
second package, CNN reports.
for a bottom: Stocks have been in a bear market for most of the year, but the
selling began accelerating in September following a series of bank failures and
all-time highs a year ago, the Dow has lost just over 40% and the S&P 500
has lost 43%. The Nasdaq has not come close to reclaiming its tech-bubble
record, but it did hit multi-year highs last October. Since then, the Nasdaq
has fallen just over 42%. Investor
fear is at an all-time high. The CBOE Volatility (VIX) index, or the VIX, hit a
record just shy of 77 Friday afternoon before pulling back a bit.
investors across the board are pulling money out of equities, with $43.3
billion pulled out of stock mutual funds during the week ended Oct. 8,
according to TrimTabs Research.
some extent, we are seeing a retail investor capitulation," said Kelli
Hill, portfolio manager at Ashfield Capital Partners. "And when everyone
is getting out, that suggests we"re getting closer to finding a bottom,"
Street was last in a bear market between 2000 and 2002 amid the end of the tech
bubble, a recession and the events of 9/11. But stocks bottomed in October 2002
and then again in March 2003, leading to a more than four year bull market.
the three major stock gauges fell to within shouting distance of that March
2003 bottom. Some market pros are wondering if that 2003 level could turn out
to be the bottom for the 2008 bear market also.
bottoms are often "retested," meaning stocks fall to a low, bounce
for a few days or even months, then fall back to right around that low, before
making a bigger, more sustained advance off the low.
what happened in the last bear market. Stocks bottomed in early October of
2002, bounced a little bit in the lead up to the start of the Iraq war and then
retested those lows in March of 2003 before moving higher.
way, the analysts spoken with agree that when the market does finally put a
bottom in place, it will lead to an extensive rally.
Bull: Looking for a bottom
Oil, gold and other commodities slumped on slowdown fears, and that dragged
down oil services, metal and mining and other underlying stocks.
result, Alcoa (AA, Fortune 500), Chevron (CVX, Fortune 500) and Exxon Mobil
(XOM, Fortune 500) were the Dow"s biggest losers.
financial services stocks bounced as investors scooped up recently-battered
shares. JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500)
and Citigroup (C, Fortune 500) were the Dow"s biggest gainers.
late Thursday that it failed to reach a deal with Wachovia and that while it
will seek damages, it won"t block a Wachovia (WB, Fortune 500)-Wells Fargo
(WFC, Fortune 500) merger.
Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) tumbled on
concerns that ratings agency Moody"s might downgrade the two. (Full story)
Electric (GE, Fortune 500) reported lower quarterly earnings Friday that met
estimates on higher revenue that was just shy of estimates. The conglomerate,
seen as a bellwether for the economy, due to the breadth of its businesses,
also reaffirmed its 2008 forecast and said it is maintaining its dividend.
Shares rallied 13%. (Full story).
breadth was negative. On the New York Stock Exchange, losers beat winners five
to three on volume of 2.95 billion shares. On the Nasdaq, decliners topped
advancers almost by a narrow margin on volume of 4.27 billion shares
to Fed action: The Federal reserve has taken several concrete steps in an
effort to thaw out the frozen credit market.
brought an emergency rate cut. On Thursday, the Treasury said it will soon buy
stakes in some banks.
the week, the Fed said it will buy short-term debt needed to finance daily
operations directly from businesses. It also said it will make $300 billion
available to banks in return for damaged assets, on top of $300 billion already
Congress approved the $700 billion bank bailout plan last Friday, which allows
the Treasury to buy bad debts from banks.
despite all these developments, credit markets have barely budged.
markets frozen: Amid the ongoing crisis, lending has dried up, making it
difficult for businesses to function on a daily basis and for consumers to get
spread, the difference between what banks pay to borrow from each other for
three months and what the Treasury pays, spiked to an all-time high of 4.65%
Friday before pulling back slightly.
the spread, the more reluctant banks are to lend to each other, rather than
from the federal government. When markets are fairly calm, banks charge each
other premiums that are not much higher than the U.S. government.
Libor, or what banks charge each other to borrow for three months, rose to a
2008 high of 4.82% from 4.75% Thursday.
on the 3-month Treasury bill, seen by many as the safest place to put money in
the short term, fell to 0.24% from 0.5% Thursday, with panicked investors
willing to take a piddling return on their money rather than risk stocks. Last
month, the yield on the 3-month bill skidded to a 68-year low around 0%.
bank lending measure fared better.
overnight bank lending rate, eased to 2.47% from 5.09% Thursday, according to
Bloomberg.com. However, the levels were still high considering that Libor was
at 2.15% a month ago. Still, it is an indication that banks were willing to take
a chance on near-term lending.
prices slipped, raising the yields. The benchmark 10-year note rallied to 3.88%
from 3.76% Thursday. Treasury prices and yields move in opposite directions.
bond markets closed early Friday and are closed Monday for Columbus Day.
markets: Oil prices plunged to a 13-month low Friday on bets that the slowing
global economy will drag down oil demand.
crude oil for November delivery fell $8.89 to settle at $77.70 a barrel on the
New York Mercantile Exchange, the second biggest single-day drop ever. Prices
slipped on continued bets that the slowing global economy will hurt demand.
have tumbled on bets of slowing demand since the price of crude hit an all-time
high of $147.27 a barrel on July 11.
of gas decreased for the 23rd consecutive day, according to a survey of credit
card activity by motorist group AAA.
for December delivery tumbled $27.50 to settle at $859 an ounce.
currency trading, the dollar gained against the euro and the yen.