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Stocks end relatively calm day with modest loss

The Rocky

Published October 1, 2008 at 6:25 a.m.
Updated October 1, 2008 at 2:50 p.m.

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The screens of specialist Thomas Ebner are reflected in his glasses he works on the New York Stock Exchange floor, Wednesday Oct. 1, 2008. Wall Street has zigzagged through a relatively calm session, closing with modest losses as financial markets uneasily awaited a Senate vote on the government's banking sector bailout.

Richard Drew © AP

The screens of specialist Thomas Ebner are reflected in his glasses he works on the New York Stock Exchange floor, Wednesday Oct. 1, 2008. Wall Street has zigzagged through a relatively calm session, closing with modest losses as financial markets uneasily awaited a Senate vote on the government's banking sector bailout.

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NEW YORK — The financial markets saw some relative calm today as investors uneasily awaited a Senate vote on the banking bailout plan, with Wall Street closing with only modest losses and the credit markets still showing signs of strain.

The Dow Jones industrials zigzagged during the session, losing more than 200 points in early trading but closing down about 20 — a far cry from the huge swings the blue chips saw during the first two sessions of the week.

Many investors were reluctant to make any major moves before the vote expected tonight on a revised version of the plan defeated earlier this week by the House. The new proposal includes tax breaks for businesses and the middle class and increases deposit insurance.

While they waited, the markets absorbed economic data that was a reminder of the impact of the credit crisis that is now more than a year old.

In an assessment of the manufacturing sector in September, the Institute for Supply Management revealed a troubling drop in new orders, which portends a continuing slowdown in the months ahead.

The trade group's overall index of manufacturing activity fell to 43.5 in September from 49.9 in August. Wall Street had expected a reading of 49.5, according to economists polled by Thomson/IFR.

"We're now seeing in those numbers that we're getting a contraction in economic activity," said Jim Dunigan, managing executive of investments at PNC Wealth Management.

At this point in the credit crisis, weak economic numbers are coming as no surprise to Wall Street — but September's numbers are expected to be particularly bleak because of the seizing up of the credit markets that occurred during the month.

The reports are further reminders of how much pain is being felt in the economy, and the data may well motivate more investors to pull money out of stocks.

But for the moment, the greatest concern on the Street remains the stagnant credit markets.

"We've taken the credit markets for granted much like you do the electricity coming on every day but in this particular case the power grid is down," said Dunigan. "If we don't have a functioning credit market banks aren't lending to each other — credit is dried up. That ultimately affects economic activity."

Nervousness about debt has made banks hesitant to extend loans; banks have preferred to hold onto their cash. But some analysts and policymakers are worried that drop in lending will curtail economic growth. And the fear paralyzing the credit markets is making it more difficult and expensive for some companies to fund their day-to-day operations, putting basics like payroll at risk.

The London Interbank Offered Rate, or Libor, on overnight dollar loans dropped to 3.79 percent today from Tuesday's record 6.88 percent. Libor measures how much banks are charging one another to borrow. Many consumer lending rates, including about half of all U.S. adjustable-rate mortgages, are tied to Libor.

But overnight Libor remains well above the target Fed funds rate of 2 percent, showing that banks are still tending to hoard their cash rather than lend it.

Demand for the safety of government debt increased today.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.71 percent from 3.83 percent late Tuesday. The yield on the 3-month T-bill, the safest type of investment, fell to 0.83 percent from 0.88 percent late Tuesday.

The decline in yields indicates that investors are willing to accept even modest returns to protect their money.

Financial markets likely will remain nervous until voting on Capitol Hill is complete. According to preliminary calculations, the Dow fell 19.59, or 0.18 percent, to 10,831.07. The blue chip index fell 778 points Monday, its steepest drop in years, after lawmakers rejected the bailout plan, then rallied 485 points Tuesday on hopes party leaders would find the votes to pass the measure.

Broader stock indicators were narrowly lower. The Standard & Poor's 500 index fell 5.30, or 0.45 percent, to 1,161.06, and the Nasdaq composite index fell 22.48, or 1.07 percent, to 2,069.40.

Comments

  • October 1, 2008

    6:32 a.m.

    Suggest removal

    ConcernedConsumers writes:

    We did everything we were supposed to do; we went to college and saved our money to buy a home and then have a child. Now, neither of us can afford to quit our jobs to raise a child. Whether we call it a “rescue,” an “investment,” or a “bailout,” it is, what it is – corporate welfare. We do not have a small business and raising the federal deposit insurance limit from $100,000 per account, to $250,000 per account, does not do a thing for us considering our extra money goes to making ends-meet. Wall Street executives are greedy, incompetent fat cats who have created this crisis themselves and are now being allowed to pick the pockets of American taxpayers to fix it.

    On September 29, 2008, Federal Reserve Chairman Ben Bernanke and his colleagues pumped an extra $630 billion dollars ($630,000,000,000) into the global financial system. Now, our politicians are pushing for a $700 billion dollars ($700,000,000,000) to bailout American and non-American financial institutions and/or businesses. That comes to a total of $1.3 trillion dollars ($1,330,000,000,000) of taxpayer money pumped into the financial system in less than a week.

    Wall Street's five biggest firms paid more than $3 billion dollars ($3,000,000,000) in the last five years to their top executives. Merrill Lynch & Co. paid its chief executives the most, with Stanley O'Neal taking in $172 million dollars from 2003 to 2007 and John Thain getting $86 million dollars, including a signing bonus, after beginning work in December. The company agreed to be acquired by Bank of America Corp. for about $50 billion dollars on Sept. 15. Bear Stearns Cos.'s James ``Jimmy'' Cayne made $161 million dollars before the company collapsed and was sold to JPMorgan Chase & Co. in June. Our current U.S. Treasury Secretary pushing for the bailout, Henry Paulson, former Goldman Sachs Group Inc. CEO, received about $111 million dollars ($111,000,000) between 2003 and 2006.

    We feel betrayed, we feel lied to and we want those financial institutions and individuals responsible for this mess to be held accountable. If our politicians want to let them off the hook by giving them our money, our $700,000,000,000, then we need to hold those politicians accountable when we vote this November.

  • October 1, 2008

    11:36 a.m.

    Suggest removal

    Americans4Liberty writes:

    ACTION ALERT!!! CALL SENATORS ALLARD AND SALAZAR TODAY -- SO NO TO ANY BAILOUTS!!!!!

    Congress must not bail out the failed banks! This is an unconscionable violation of the public trust. We encourage everyone to contact their congressmen and let them know that the continued looting of the American taxpayer for the benefit of corporations is wrong and must stop.

    Together we can mobilize to change our politics and our nation, but it begins with you. Please act!

    http://70.32.73.101/contactcongress.php
    (copy and paste this information into the Senator's web forms (see below):

    http://www.senate.gov/general/contact...

    Allard, Wayne- (R - CO)
    521 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON DC 20510
    (202) 224-5941
    Web Form: allard.senate.gov/public/index.cfm?FuseAction=Contact.Home

    Salazar, Ken- (D - CO)
    702 HART SENATE OFFICE BUILDING, WASHINGTON DC 20510
    (202) 224-5852
    Web Form: salazar.senate.gov/contact/email.cfm

  • October 1, 2008

    2:37 p.m.

    Suggest removal

    Americans4Liberty writes:

    According to Article I, Section 7 of the Constitution, the Founding Fathers wanted the people's House to originate all spending bills. This was the branch that was closest to the citizenry. Members of House were to be, in the fullest sense of the word, "representatives."

    The Senate was to be a check on the excesses of the House. The President was given a veto to check them still further. And finally the Courts could put a stop to un-Constitutional spending not specifically enumerated or authorized by the Constitution.

    But now, with the bailout, the Senate is getting things backwards. They have no bill from the House.

    But it gets worse.

    New Hampshire Senator Judd Gregg, appearing on TV last night, suggested that they had a way around the Constitution. He said it's done all the time. The Senate will simply attach its bailout bill to a current "CR" -- a Continuing Resolution. In other words, they'll attach it to another, unrelated bill -- and send it back over to the House.

    Not only is this un-Constitutional -- a violation of Article I, Section 7 -- but this Judd Gregg approach also breaks the principle of the One Subject at a Time Act.

    And the rush to get this done printed and voted on in a hurry violates the transpartisan principles of the Read the Bills Act.

    Now as if that's not all bad enough, Judd Gregg wasn't done being reckless. When asked about potentially suspending the "mark-to-market" rules, he said that the Congress didn't have the specialization necessary to address that issue. Instead, what to do about mark-to-market needed to be left in the hands of the (un-elected) “experts” at the Securities and Exchange Commission.

    Jim Babka
    President
    DownsizeDC.org, Inc.
    http://www.DownsizeDC.org is sponsored by DownsizeDC.org, Inc.