Investors can't shake fears; Dow falls 500-plus

Associated Press

Published October 7, 2008 at 6:43 a.m.
Updated October 7, 2008 at 5:17 p.m.

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Jin Lee © Bloomberg News

Pedestrians walk past the New York Stock Exchange in New York, U.S., on Tuesday, Oct. 7, 2008. U.S. stocks fell for a fifth day as concern banks will have to raise more capital overshadowed the Federal Reserve's plan to purchase short-term corporate debt to unfreeze credit markets.

The misery worsened on Wall Street today, with stocks piling on losses late in the session and bringing the two-day decline in the Dow Jones industrials to more than 875 points amid escalating worries about credit markets and the financial sector.

The Dow lost more than 500 points, and all the major indexes slid more than 5 percent. The Standard & Poor’s 500 index saw its first close below 1,000 in five years.

Steps by the Federal Reserve to reinvigorate the dormant credit markets ultimately weren’t enough to calm nervous investors. News about financial companies only added to their despondent mood.

“The calls I’m getting — every money manager I deal with, and every client I talk to — are just very emotional. This is a very, very emotional time, and most of them are taking steps to shore up their defenses, reducing exposure to stocks just to defend their portfolios,” said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors.

The magnitude of the stock market’s plunge is reflected in the Dow’s grim stats: — today’s close was its lowest close in five years, since Sept. 30, 2003.

* In just five trading days this month, and in the fourth quarter, it is down about 1,400 points, or 13 percent.

* It has fallen 33.3 percent since its record close of 14,164.53, a year ago Thursday.

* Through today, it suffered its largest five-day point decline ever, and its largest five-day percentage drop since the Sept. 11, 2001, terror attacks.

The Dow’s percentage loss today was 5.11 percent, actually a better performance than the 5.74 percent suffered by the S&P, the market indicator most watched by traders and analysts. The Nasdaq composite dropped 5.8 percent.

The market’s paper loss for the session came to about $700 billion, as measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies’ stocks. So far this month, the loss has come to about $2.2 trillion.

Federal Reserve Chairman Ben Bernanke warned in a speech today that the financial crisis could prolong the difficulty the economy is facing. While his remarks were widely regarded as a sign that an interest rate cut could be in the offing, Wall Street appeared little comforted and focused on his downbeat assessment.

Earlier, the Fed announced plans to buy massive amounts of corporate debt to jump-start lending in the markets where many companies turn for short-term loans called commercial paper. The evaporation of faith that loans will be repaid has lenders weary and is making it more difficult and expensive for businesses and consumers to borrow.

The credit markets did show some slight signs of easing as demand for safe-haven investments decreased, though that offered little comfort to investors highly anxious about the extremely low lending levels and their impact on the economy. The markets seized up last month after Lehman Brothers Holdings Inc. filed for bankruptcy and the government stepped in to rescue insurer American International Group Inc.

The Fed’s latest move to lubricate the credit markets stops short of a broad interest rate reduction that some investors say is necessary to restore confidence in the market. Other market watchers argue, however, that more focused steps like Fed’s decision to buy commercial paper are what’s needed.

Investors remain worried about financial companies like Bank of America Corp., which fell after slashing its dividend and reporting that its third-quarter profit fell 68 percent. The stock fell $8.45, or 26 percent, to $23.77 today. It was by far the steepest decliner among the 30 stocks that comprise the Dow industrials.

And a rumor that Mitsubishi UFJ Financial Group Inc. was pulling out of a deal to acquire up to 24.9 percent of the voting shares of Morgan Stanley sent the investment bank’s stock tumbling $5.85, or 25 percent, to $17.65. The companies denied the rumor, but the Street was panicky enough that it still sent Morgan Stanley and other financials tumbling.

Investors are fearful that financial companies will continue to face cash shortages even with efforts in Washington and by other governments to resuscitate lending.

“It’s such a widespread loss of confidence and, to some extent, a race for the exits,” Johnson said.

Stocks ended lower for the fifth straight session. The Dow fell 508.39, or 5.11 percent, to 9,447.11. The drop came a day after the blue chips fell below 10,000 for the first time in four years. The Dow skidded as much as 800 points on Monday before finishing with a loss of 370.

Broader indexes also fell. The S&P 500 index declined 60.66, or 5.74 percent, to 996.23, the first close below the 1,000 mark since September 2003. The Nasdaq composite index fell 108.08, or 5.80 percent, to 1,754.88.

The dollar was mostly lower against other major currencies, while gold prices rose.

Oil prices rebounded after plunging Monday to an eight-month low on concerns a global recession will undermine demand for crude.

Light, sweet crude rose $2.25 to settle at $90.06 a barrel on the New York Mercantile Exchange.

Concerns about the credit markets still fed demand for the relative safety of government debt, though pressures eased. The yield on the three-month Treasury bill, which moves opposite its price, rebounded to 0.81 percent from 0.50 percent late Monday.

Demand for short-term Treasurys remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Some investors moved out of longer-term Treasury bonds, which don’t draw as much demand as shorter-term debt in times of fear.

The yield on the 10-year note rose to 3.51 percent from 3.45 percent late Monday.

Investors are still hoping to see other moves from the Fed to boost confidence. Australia’s central bank lowered interest rates by the largest amount since 1992 in a surprise move, and that reignited hopes that others, including the Fed and European Central Bank, might follow suit.

Though not giving the market a rate cut, the Fed has taken other steps to help unclog the credit markets. On Tuesday, policymakers provided more details about when it will make $900 billion in short-term loans available to squeezed banks.

The loans are made available to banks through auctions. The Fed, in coordination with other countries’ central banks engaged in similar efforts, laid out dates that it will conduct the auctions through the rest of this year.

But write-downs of bad debt at Bank of America are a reminder to investors that troubles within the financial sector remain, according to Kim Caughey, equity research analyst at Fort Pitt Capital Group.

“I think we have weeks of volatility ahead of us,” she said.

“We’re not overly optimistic but we’re not indulging in doom and gloom either.” She said the arrival of quarterly results from corporations has made investors even more jittery, with investors seeking any information about how companies are faring. She said some companies could go under because of the tough economic conditions but that the stronger players would survive.

“You’re going to get that Darwinian shakeout process. That’s going to happen from the mom and pops all the way up to the big boys,” she said.

Minutes from the Fed’s last meeting described a U.S. economy that was slowing considerably and credit markets that were deteriorating rapidly. The meeting was held Sept. 16, the day after the failure of Lehman Brothers. The central bank’s Open Market Committee found the risks from weaker growth and higher inflation were roughly equal; that was its rationale for leaving rates unchanged. Policymakers, who will meet again at the end of the month, left key interest rate unchanged at 2 percent.

About 2,800 stocks declined on the New York Stock Exchange, while fewer than 400 advanced. Consolidated volume came to 6.84 billion shares, compared with 7.81 billion shares traded Monday.

The Russell 2000 index of smaller companies fell 36.96, or 6.20 percent, to 558.95.

Overseas, Japan’s Nikkei stock average fell 3.03 percent.

Britain’s FTSE 100 rose 0.35 percent, Germany’s DAX index fell 1.12 percent, and France’s CAC-40 rose 0.55 percent.

• October 7, 2008

  10:50 a.m.

  Suggest removal

  Americans4Liberty writes:

  Nancy Pelosi's "buy-in"
  by Lynn Stuter

  America received the news on Sunday, September 28th that the $700 billion package now before Congress at the request of President Bush isn't a "bail-out," it's a "buy-in." That came straight from the horse's mouth, Bush's shill, House Speaker Nancy Pelosi. It's now being parroted by other Bush Democrats like Representative Barney Frank (D-MA). So, pray tell, if this is a buy-in and not a bail-out, what are we buying in to? Pelosi says we are buying into our economy, saving businesses and jobs. But is that really true?

  This financial mess, if one boils it down to the bottom line, is the result of Wall Street tycoons and bankers taking on bad debt, speculating against it, making a profit from doing so, but not offsetting that bad debt by profit; the profit, in large part, going into the pockets of the tycoons, bankers, stockholders, lobbyists and our elected representatives in the form of political contributions. According to this article on OpenSecrets.com those who voted for the $700 billion bailout package received 51% more money from the finance sector since 1989 than those who opposed it.

  And the bottom line is that this all came about because of crooked Wall Street tycoons, bankers, lobbyists and elected representatives who profited from speculating on the bad debt until the whole concept imploded, as it was bound to, and the bad debt could no longer be ignored. The banks that held the bad debt became insolvent. This is tantamount to the average American taxpayer not paying his mortgage, his car payment, his utilities, his credit cards, but setting up a pool to bet against how long his bad debt would be ignored; taking the profit from that betting, living high on the hog, but not paying off the debts until his bad debts could no longer be ignored; then asking the community to pay off his bad debts so he still had his house, his car, and his money......

  http://www.newswithviews.com/Stuter/s...

• October 7, 2008

  11:15 a.m.

  Suggest removal

  Marshdale writes:

  It does not matter who proposed the buy-in or bailout. Whatever you want to call it. Anyone with a brain would know that it only would serve as a bandaid on the blood letting but a needed bandaid. I do believe without it, the blood letting would be a kin to your aorta being yanked right out of you. This way it's only your femoral artery. Both will kill you, but one is instantaneous and the other is a little slower.

  We have been told that the Bush economic plan would work by these jerks for years. Once again, for anyone with half a brain, all they had to do was look around at the housing market and realize there is no way this many people could have this much money to buy as many large and expensive homes as were being built.

  Nobody forced these poor bankers to lend this money. Wah Wah. To think that lending institutions were not involved in lobbying for this stuff is rediculous on its face. They could not wait to get into other markets. They were salivating at the trough fighting for a slot.

  You here the right wing pundits trying to blame the poor for this problem.

  Bull is all I have to say!!!!

• October 7, 2008

  12:15 p.m.

  Suggest removal

  Keith43 writes:

  There's a bigger agenda behind all this folks! The following quote is from a memo sent by J.P. Morgan to all of the leading U.S. bankers in 1934. The goal of the elitists today, is the same. Frightening but true people!
  
  "Capital must protect itself in every way. . . . Debts must be collected and loans and mortgages foreclosed as soon as possible. When through a process of law the common people have lost their homes, they will be more tractable and more easily governed by the strong arm of the law applied by the central power of leading financiers. People without homes will not quarrel with their leaders. This is well known among our principle men now engaged in forming an imperialism of capitalism to govern the world. By dividing the people we can get them to expend their energies in fighting over questions of no importance to us except as teachers of the common herd."

• October 7, 2008

  12:57 p.m.

  Suggest removal

  HopiMedicineMan writes:

  John Pierpoint Morgan died in March, 3, 1913.

• October 7, 2008

  1:04 p.m.

  Suggest removal

  crbowles writes:

  Everyone has a stake in the blame for this...including YOU Joe Sixpack. Wall Street, the banks, the mortgage market and the average consumer all got in over their heads because it was easy to do so. It's the feast or famine theory writ large. In a time of famine, people eat till they can't fit in the McDonald's benches. It's been said that, even though the Western world's enjoyed a lot of prosperity in the last few decades, the stresses of modern life and the constant pressures to keep up with the Jones's, have created an artificial feeling of famine in our society. So everyone feasts on bad meats served up by greedy bankers and everyone gets sick the next day. I think most people and the finance industry knew they were in over their heads; knew the credit economy not backed by actually making things was suicidal. By removing all the regulations against this, the Republican Congresses in the last decade, Clinton, Bush and the Democrat congress now gave them all the gun to blow our collective head off.

• October 7, 2008

  1:22 p.m.

  Suggest removal

  happymike44 writes:

  Time to break out the coffee cans and shovel for it seems your backyard will be the place to save your money soon.

• October 7, 2008

  1:25 p.m.

  Suggest removal

  HopiMedicineMan writes:

  CR
  We're dealing with cycles postulated long ago by Kondratieff, Schumpeter, Elliot and others. The left likes to paint everything with moral adjectives. The next phase of this economy will be plundering. Now that the capital base of the economy went from the immoral, greedy bankers to the taxpayer, the machine politics begun by Al Capone, will be squeezing every dime in can out of you. Think about it. There's no money for Obama's programs. The left has successfully killed the industrial base that built the wealth that's disappeared in the past two weeks. It once defined America. But Obama must make good on his promises, and payoffs, so ANY income stream will need to be heavily taxed. Obama is a failure before he even begins his presidency.

• October 7, 2008

  1:53 p.m.

  Suggest removal

  Vector049 writes:

  Brother, can you spare a dime? I know some stock brokers who will soon be selling Mulligan stew down by the railroad tracks if any of you hobos are interested.

• October 7, 2008

  1:54 p.m.

  Suggest removal

  blownaway writes:

  it was the idiot gw and now the gop wants to elect another superbly unqualified person.open up your eyes.lets lower the bar so low that you dont even need an education to run this country,mccain and palin==mavericks that cant run the country let alon a debate.over and out.

• October 7, 2008

  2:02 p.m.

  Suggest removal

  MattGuyver_007 writes:

  Give up the partisan blame game- they are all the same up there in Washington.

  This situation is flat out brutal for everyone, I mean everyone. I blame Wall Street greed and complete lack of government oversight, not Republicans, Democrats, et. al.

• October 7, 2008

  2:12 p.m.

  Suggest removal

  AC writes:

  HopiMedicineMan writes: "John Pierpoint Morgan died in March, 3, 1913."

  Did he take his firm with him? Or could it have issued that memo in 1934, do ya think?

• October 7, 2008

  2:36 p.m.

  Suggest removal

  esarem writes:

  Idiot commentators kept saying that stocks were falling/fluctuating wildly because of fear that there would be no bailout. WRONG! Real people, with a clue, knew that the bailout meant there would be no change in the way white collar criminals and crooked politicians were running the country. Now the crooks got their bailout and they can count on a continued flow of ill-gotten million$ into their offshore accounts and the regular folks are running for the hills. The politicians are thieves and the pundits are their idiot accomplices. I suspect the accomplices are so stupid as to possibly innocent because of that stupidity. The bailout is just more of the same. We continue to be fleeced by Wall Street and Washington.

• October 7, 2008

  3:02 p.m.

  Suggest removal

  Diff writes:

  My confidence in The Fed and the US Treasury are falling about as fast as the Dow...

  They keep taking various unproven and untested "radical" steps - "hoping" it will help. ..
  For Crying out loud, are these not the people that should KNOW!
  $700 billion in Tax payer dollars and the whole economy is still going to tank in the dumper!
  All these radical, and knee jerk reactions are feeding the fear pig - and making things worse in a vicious cycle...
  I think we would end up better off if the Fed and the Treasury would just close their door and stay out of it - and let things settle down, including peoples nerves!

  Vote Em OUT - Vote em ALL out!
  Every sitting member of the Senate and House should be voted AGAINST!
  Over this and the next two election we can have a complete 100% turnover of Congress - maybe THAT will get the message across
  We deserve better and we expect better!

• October 7, 2008

  3:05 p.m.

  Suggest removal

  joggle writes:

  Marshdale: You leave me with little to write, great post!

  I would just add that there will always be people that can be hoodwinked into getting a mortgage they can't afford. The people handing out the loans KNEW that the people receiving the loan could not possibly afford the mortgage for more than a year or two and yet gave it to them anyway.

  An analogy I can make is a person suffering from chronic pain. Sure, they may love to get morphine that would block the pain, but a responsible doctor would not prescribe it for a long period of time due to how addictive it is and how hard it is on your system.

  In this case, the guys handing out the mortgages should have been much more responsible rather than handing out these bad mortgages or, even worse, trying to trick people into mortgages they couldn't afford.

• October 7, 2008

  3:31 p.m.

  Suggest removal

  FCZ writes:

  Higher taxes, new taxes, new unfunded mandates, new government programs...will force businesses to close, employees will lose their jobs.

• October 7, 2008

  3:39 p.m.

  Suggest removal

  fishoutawater writes:

  Privite Profits = Social Losses

  ????????????????????????

  McCain today took a comment from Obama so far out of context he basically lied. New York Times!

  Could these lies work yet again on Americans? Could people, yet again, be misslead into voting against their own agenda's?

  DONT BELIEVE THE LIES!!!!!!!!!

  McSame/Failin - NO WAY!

• October 7, 2008

  3:51 p.m.

  Suggest removal

  LOUIE writes:

  We've only just begun; this is going to be a long economic winter. Foolish man builds his house on the sand; wise man builds his house upon the rock. Tonight as you watch the debate, realize business has no confidence in either candidate, even less with congress. America is a rudderless ship, without a captain (president) to lead, and with a crew (congress) fighting with itself. There's a storm on the horizon, and the rocks are ever so near. America needs a leader, especially in this perilous time. Vote either candidate, and the nation will still remain bitterly divided. Neither has the ability of Clinton nor Reagan, to rally this nation, and bring unity. Congress is a mess, leaving little hope. So we drift, fighting over which candidate is better than the other, when neither is a good choice to lead at this perilous juncture in our history. Want a glimpse of that bitter division, listen to the politicians fight, read the bitterness of these blogs as people fight over whose better, never realizing neither give much confidence to the people, only divide us further. Should be a ride these next 4 years, I prepared for these days long ago. I have to vote, but for who, the choice is not one I care to make. I'll see you after the debate!

• October 7, 2008

  4:01 p.m.

  Suggest removal

  chickenlittle1234 writes:

  HopiMedicineMan writes: "The left has successfully killed the industrial base that built the wealth that's disappeared in the past two weeks. It once defined America."

  Not quite, unless you're also saying that all of the sellers of stock right now are from the left. The bailout, proposed by Paulson, was a mutual effort. Yeah, there was a lot of gum slapping on both sides about who's to blame, but, as has been posted already, we can collectively look at ourselves in the mirror and learn the answer to that question.

  The real sea change occurred when Reagan became president, and started undoing the New Deal. (And by the way, RM Nixon was essentially a New Deal president - the Federal government grew tremendously under him.) That trend reached it's high water mark in the 2-4 years following the Republican Revolution of 1994. The sellout of that began when Tom Delay was effectively in charge of the House. We're now at the end of that era, and about to return to one of more direct government intervention and involvement. You may not like the sound of that, but given the runaway excesses of deregulation, the times they are a-changin'.

• October 7, 2008

  5:11 p.m.

  Suggest removal

  LockeRobster writes:

  Irrational exuberance drove the markets to places where they had no businees being on fundamentals, and it's ugly twin, irrational fear, is bringing them right back down.

  And EVERYONE is to blame.

  http://www.factcheck.org/elections-20...

• October 7, 2008

  8:52 p.m.

  Suggest removal

  SteveFesch writes:

  This buyout plan reminds me of RTD and FasTracks. We have our own "bailout" in the making here in Colorado to the tune of over $20Billion dollars. They want us to "buy" in again!

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