Dow regains nearly 500 points; credit worries persist
Associated Press
Published September 30, 2008 at 5:32 a.m.
Updated September 30, 2008 at 2:35 p.m.
Photo by Bloomberg News
The Dow Jones ticker in Times Square displays news about the stock market in New York on Monday. ,
NEW YORK — Wall Street snapped back today after its biggest sell-off in years amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector.
But the seized-up credit markets where businesses turn to raise money showed no sign of relief.
The recovery in stocks wasn't unexpected as carnage on Wall Street often attracts bargain hunters, though questions remain about how investors will proceed.
Without a bailout plan in place to absorb soured mortgage debt and other bad loans from battered banks, investors are left wondering what might restore confidence in lending.
Major stock indexes were almost a sideshow during the session, with the credit markets as the main event. A key rate that banks charge to lend to one another shot higher, a tightening of the availability of credit that could cascade through the economy.
Traders on the floor of the New York Stock Exchange, still stunned from Monday's 778-point rout in the Dow Jones industrial average, warned that the government needs to approve a plan that will sweep away the fears that hobbled the credit markets.
While U.S. political leaders have vowed to revisit the issue, the House isn't slated to meet again until Thursday.
"If it doesn't pass, then look out below," said Jason Weisberg, an NYSE trader for Seaport Securities. "It could get ugly."
Though the blue-chip index rose nearly 500 points, the main worry for traders is that a lack of a plan will make it nearly impossible for some companies to fund basic operations like making payroll. Participants in the credit market buy and sell debt that companies use to finance operations.
The benchmark London Interbank Offered Rate, or LIBOR, that banks charge to lend to one another, rose sharply today, making it more expensive and difficult for consumers and businesses to borrow money. In addition, credit card debt and more than half of adjustable-rate mortgages are tied to LIBOR, so an increase isn't welcome for many consumers.
LIBOR for 3-month dollar loans rose to 4.05 percent from 3.88 percent on Monday. LIBOR for 3-month euro loans, meanwhile, rose to 5.27 percent, from 5.22 percent Monday.
Critics of the bailout package believe that it was too costly and wouldn't have done enough to jump-start lending. To maintain pressure ahead of Thursday's likely vote, President Bush said in a statement from the White House early today that the damage to the economy will be "painful and lasting" unless Congress passes the bailout measure.
On Wall Street, many traders likely will proceed cautiously while they gauge prospects for resurrecting the bailout effort, which was backed by leaders of both parties.
"I'm not getting the sense that investors are going to be jumping in with both feet until there is some kind of resolution on the plan," said James Maguire, an NYSE floor trader with Christopher J. Forbes. "If there's a no vote, we're going to see a lower overall drift in stocks. It will be a slow bleed."
Traders also will likely focus on how the bloodshed will look on paper. Today marked the final session of the third quarter — and what is typically the worst month for the stock market — so some portfolio managers might try to do what they can to dress up their performance.
Others might simply wish to dump holdings in an unpopular corners of the market like the financial sector.
At the close, the Dow rose 485.21, or 4.68 percent, to 10,850.66 after falling nearly 7 percent on Monday to its lowest close in nearly three years. It was the largest point drop and 17th largest percentage drop in the blue chip index.
The percentage decline was far less severe than the 20-plus-percent drops seen in the stock market crash of October 1987 and before the Great Depression.
Broader stock indicators also bounced higher. The Standard & Poor's 500 index recovered 58.34, or 5.27 percent, to 1,164.73, and the Nasdaq composite index rose 98.60, or 4.97 percent, to 2,082.33.
The S&P fell 8.79 percent Monday, while the Nasdaq lost 9.14 percent.
The yield on the 3-month Treasury bill rose today to 0.89 percent from 0.14 percent late Monday. The yield fell Monday as investors clamored for the safety of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.83 percent from 3.58 percent late Monday. The dollar rose against other major currencies and gold prices advanced.
While investors focused on what might come from Washington this week, Wall Street was cheered by several economic readings.
A private research group reported that consumer confidence rose unexpectedly in September. The Conference Board said today its Consumer Confidence Index rose to 59.8 from a revised 58.5 in August; Wall Street had expected a reading of 55.5, according to Thomson/IFR.
The reading, which doesn't reflect attitudes following Monday's steep stock market sell-off, remains near a 16-year low.
The Chicago Purchasing Managers' index, which measures business conditions across Illinois, Michigan and Indiana, came in at 56.7 compared with 57.9 in August — a second straight month of a strong reading.
Light, sweet crude rose $4.27 to settle at $100.64 on the New York Mercantile Exchange. Oil fell more than $10 a barrel Monday as investors worried that a weaker economy would curtail demand.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where volume came to a light 1.02 billion shares.
The Russell 2000 index of smaller companies rose 22.86, or 3.32 percent, to 679.58.
Overseas, Japan's Nikkei stock average fell 4.12 percent. But Hong Kong's Hang Seng index rose 0.76. Britain's FTSE 100 rose 1.74 percent, Germany's DAX index added 0.41 percent, and France's CAC-40 rose 1.99 percent.
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September 30, 2008
10:07 a.m.
Suggest removal
wyhammertime writes:
OH my look at what is happening ! I wonder what will happen if they put off the BAILOUT for a few more day's ?? Looks like a wall street SNOW JOB I hope the fat ceo's are losing just like the rest of us I bet if they do the market will make a turn around real quick !!! But on the other hand I hope they LOSE theirA$$ like the most have !!!! I thought they might be jumping out the windows but they don't have the GUT'S to do that anymore !!! So I put them [ceo's] on the same level as a lawyer not to high on my list !!!
September 30, 2008
1:03 p.m.
Suggest removal
mtb writes:
Why would the story title include "Record loss" and then in the story say this is nothing like the "20-plus percent" drop in 1987? Seems to be pushing an agenda on people that just read headlines.
Obviously not a record, unless you say a record drop for this week/month/hour etc.
It's almost like a baseball stat. "We've never had a left handed batter hit the cycle after having the flu on the 18th of August."
They always seem to have a new record being broken, don't they? :)
September 30, 2008
1:06 p.m.
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chickenlittle1234 writes:
wyhammertime - the bailout wasn't supposed to be a fix for the stock market. The credit markets are the problem, and that hasn't changed. Today's buying is a reaction to yesterday's over-selling. In fact, I bet that if short selling on financial companies had not been temporarily banned, yesterday's loss of 777 points would have been a lot less, because the short sellers would have turned to buyers late in the day, as they covered their positions.
And while it's easy to say hang the CEOs, most of the companies listed on the NYSE or NASDAQ run companies that actually make stuff, and employ a lot of people. They rely on credit to run their companies, and without it, they close.
September 30, 2008
1:09 p.m.
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chickenlittle1234 writes:
mtb - it was the biggest point loss ever, but not the biggest percentage loss. That occurred in October, 1987 (about a -27% decline).
September 30, 2008
1:18 p.m.
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Nobama writes:
What's going on? I thought the sky was falling?
September 30, 2008
1:20 p.m.
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Willy writes:
chickenlittle1234 writes:
.
And while it's easy to say hang the CEOs, most of the companies listed on the NYSE or NASDAQ run companies that actually make stuff, and employ a lot of people. They rely on credit to run their companies, and without it, they close.
And contrary to popular belief, most are honest and are paid a fair salary.
September 30, 2008
1:50 p.m.
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danirobi writes:
The market is correcting itself. NO BAILOUT!
September 30, 2008
2:09 p.m.
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Willy writes:
The market is not the economy. No need for action to fix the stock market, it will fix itself if the economy is stable. As Chicken says, to stablize the economy, the credit situation needs to be stablized. That is not an endorsement of the current "bailout plan", but the realization that something must be done.
September 30, 2008
2:10 p.m.
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chickenlittle1234 writes:
danirobi - see my comment above. We wouldn't be bailing out the stock market. We need to have some care about over-interpreting what has always been (especially during the last 12 months) a volatile place. The market could decline tomorrow by the same 5.2% gain of today.
September 30, 2008
2:29 p.m.
Suggest removal
dilligaf writes:
danirobi writes:"The market is correcting itself. NO BAILOUT!"
Again more idiots talking out of their a. There is a big difference between the stock market and banks that are closing. Come on people do a little research before posing you just make fools of yourselves. danirobi your very good at posting about things you don't have a clue about.
September 30, 2008
2:33 p.m.
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MrCrush writes:
Chris Dodd, Nancy Pelosi, Harry Reid and Barney Frank should all be fired and prosecuted. Look at the recent history and it's very, very clear that all of them knew this was coming and cashed in because of it. Sure, elect Obama and match him up with this group. You think we're in financial ruin now... just wait. Send them all back home and give Frank a few tokens to the local bathhouse. What a bunch of idiots!
September 30, 2008
2:47 p.m.
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BigSky182 writes:
http://www.linkedin.com/redirect?url=...
September 30, 2008
2:53 p.m.
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FCZ writes:
Bailout.
We do not need any stinking bailout...
September 30, 2008
3:04 p.m.
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BigSky182 writes:
dilligaf writes:
danirobi writes:"The market is correcting itself. NO BAILOUT!"
Again more idiots talking out of their a.
Dilli - We have all been told by the Political DoomSayers that we HAVE to have this bailout or else the stock market would fail. ALL of the MSM pointed to yesterdays plunging stock as evidence of that fact.
And today it auto-corrected... just like all of us rational adults guessed that it would
September 30, 2008
3:14 p.m.
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dilligaf writes:
BigSky182
Well it looks like you haven't been told about the bank failures. Now that causes the stock market to react but that is not the main concern. Go talk to all those people that are losing jobs and their savings and tell them all your concerned about is the stock market. Try and do some research on what is happening to our banking industry.
September 30, 2008
3:20 p.m.
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chickenlittle1234 writes:
BigSky - I wasn't hearing anything about the stock market failing, even yesterday. What I did hear was the market's reaction to the failure of Congress to act was to run for the exits. There are always vultures like me who are willing to go in after the storm and pick up some value. By the way, volume was mediocre today, at about 1.6 billion shares. Not a good sign for a rally.
September 30, 2008
3:40 p.m.
McGowdog writes:
(This comment was removed by the site staff.)
September 30, 2008
3:46 p.m.
Suggest removal
GeeTee writes:
Using the stock market to measure the economy is like putting lipstick on a pig and then putting the pig in a beauty contest -- it still ain't pretty.
The stock market is NOT real money. It is PLAY money based on "confidence" and scams. The REAL economy is a shambles.
Good for the House of Reps for NOT passing this POS legislation -- even if their only reason was to protect their butts in the upcoming election.
September 30, 2008
4:09 p.m.
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Elwood writes:
McGowdog,
Could be sniffers. But look at their smiles as they think, "man I'm glad I get paid no matter what I lose today". While the rest of us citizens just watch our 401k's go down the tube.
September 30, 2008
4:13 p.m.
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Fisherman writes:
Stop bailing!!!
http://www.cnn.com/2008/POLITICS/09/2...
September 30, 2008
4:14 p.m.
Suggest removal
B300 writes:
dilligaf: I think you makes some good arguements, but why do you insist on name calling? I think you wouldn't talk like that to their faces. or maybe you are one of those tough guys that beat people up! Naa, I think you are one of the names you call other people. I think you should knock it off!
September 30, 2008
5:15 p.m.
Suggest removal
Americans4Liberty writes:
"We checked the U.S. Constitution for clarification. We were looking for a provision stating that the U.S. Government shall enter the mortgage finance business and use taxpayers money to rescue irresponsible lenders and dimwit homeowners from their own mistakes. It wasn't there. The government is in the business of stacking one monumental fraud on top of another...trying to give everyone the idea that he can live at someone else's expense. Sooner or later, the whole mountain of flimflam falls down." (Bill Bonner, The Daily Reckoning)
"This is a bankers' coup cooked up and facilitated by the deep-money guys who operate stealthily behind the political sideshow. The only time they emerge from their stinkholes is when they're flushed out by a crisis that threatens their continued dominance." (Mike Whitney, Trouble in Banktopia)
"THEY SAY there's a billionaire bailout deal reached during a meeting of a few top people. That's how Congress works. It's a machine. The leaders make deals, and the troops fall in line and are paid off with loot just like an ancient army." (James Ostrowski)
"...the financial elites will rely on a purchase from the last and greatest fool in the pyramid chain that has been our fractional reserve banking system, the U.S. taxpayer..." (Casey Khan)
"The best economic system is still one in which $700 billion of decisions are spread among all of us, not one guy who used to run Goldman Sachs and who, just this summer, said that the economy was fine." (Joel Stein, LA Times)
"Now the Wall Street crony capitalists have put a 700-pound billion dollar bag of dung on taxpayers' doorsteps, rung the bell, and expect you to thank them when you answer it." (Rep. Thaddeus McCotter, Michigan)
CALL YOUR SENATORS AND REPRESENTATIVES AND SAY HELL NO TO ANY BAILOUT! PERIOD!!
September 30, 2008
5:23 p.m.
Suggest removal
McGowdog writes:
""McGowdog,
Could be sniffers. But look at their smiles as they think, "man I'm glad I get paid no matter what I lose today". While the rest of us citizens just watch our 401k's go down the tube."""
Sniffers Sniffers Sniffers Rocky mountain news is a worthless rag.
September 30, 2008
11:25 p.m.
Suggest removal
charst46 writes:
It is clear that most people do not understand what is at stake.
This bill was not about 'bailing out' executives. The companies that created the easy loans (zero down, no recourse) are gone, do not exist. The investment firms that supported those are gone, they no longer exist. There is no one to bail out.
This bill is about credit. Most companies borrow money short term to pay for raw materials for inventory (have not sold the product yet, need money to buy the makings), to fund payroll and other minor, insignificant things like that: the things that clearly do not matter to main street from the comments I have read here.
The credit market has ceased to exist. The gap between 30 and 90 day T-Bills and the LIBOR rate (the rate used to set loan rates for companies and banks loaning money to each other) is the critical rate. The higher the difference between the two, the greater the cost of borrowing. T-Bills are considered risk free, LIBOR how risky companies like Qwest, Coca-Cola, Google and banks like Bank of America, West Fargo, Fifth-Third happen to be.
Obviously, those companies and banks are not risky. But the gap between LIBOR and T-Bills says differently. To gain some perspective, the gap in the last two recessions was 140 basis points or about .7%. During the Great Depression, it was about 820 points or about 4.1% (another period of no credit).
Today the gap was 420 points. Passage of this bill is necessary for payrolls to get funded, Christmas inventory to be purchased, and a host of other daily things to happen. Welcome to the most ignorant move since Smoot-Hartley.......