Wall Street tumbles below 10,000 mark amid global sell-off

Posted October 6, 2008

— Wall Street tumbled again Monday, joining a sell-off around the world as fears grew that the financial crisis will cascade through economies globally despite bailout efforts by the U.S. and other governments. The Dow Jones industrials skidded nearly 500 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain.

The markets have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets, and that many banks are still having difficulty gaining access to cash. That's caused investors to exit stocks and move money into the relative safety of government debt.

Over the weekend, governments across Europe rushed to prop up failing banks. The German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG, while France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

The governments of Germany, Ireland and Greece also said they would guarantee bank deposits.

The Federal Reserve also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

Investors took a bleak view of the future, seeing no end to the crisis in the near term.

"This is a psychologically important moment that we passed below the 10,000 level," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "But, the issues are worldwide. The fact is people are scared and the only thing they're doing is selling."

In midmorning trading, the Dow Jones industrial average fell 443.08, or 4.29 percent, to 9,882.30, dropping below 10,000 for the first time since Oct. 29, 2004. At one point, the Dow was down nearly 600.

Broader indexes also tumbled. The Standard & Poor's 500 index shed 53.12, or 4.83 percent, to 1,046.11; and the Nasdaq composite index fell 101.07, or 5.19 percent, to 1,846.32. The Russell 2000 index of smaller companies dropped 29.31, or 4.73 percent, to 590.09.

There were only 78 advancing stocks on the New York Stock Exchange, compared to 3,080 decliners. Volume came to 512.4 million shares.

In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 6.31 percent, Germany's DAX down 8.29 percent, and France's CAC-40 down 8.76 percent.

The anxiety was again obvious in the credit markets. The yield on the three-month Treasury bill slipped to 0.33 percent from 0.50 percent late Friday. Demand for bills remains high because of their safety; investors are willing to take extremely low returns just to have their money in a secure place.

Investors also moved into longer-term Treasury bonds. The yield on the 10-year note fell to 3.45 percent from 3.60 percent late Friday.

Banks' hesitation to lend to one another and to many businesses and individuals is the result of the bad mortgage debt that the financial rescue is supposed to sweep up. But it's still unclear how quickly financial institutions will be able to hand that debt to the U.S. government and convince the markets they are healthy again.

There has been some hope that perhaps the Fed, in concert with other central banks, might cut interest rates to help stimulate the economy. With oil prices well off their midsummer highs and indicators pointing to a slower economy, the Fed's worries about inflation are less than they had been, making it easier to justify a rate cut.

Investors might get some indication about a potential rate cut with several policymakers slated to speak this week. Dallas Fed President Richard Fisher and Chicago Fed President Charles Evans will speak on the U.S. economy on Monday. Federal Reserve Chairman Ben Bernanke is due to speak on Tuesday.

Frederick Dickson, chief market strategist at D.A. Davidson & Co., believes investors are eager for any signs about the well being of the economy.

"Wall Street at this point is shifting its attention from whether Congress was going to act on the emergency stabilization bill to the realization that the economy is slowing significantly faster than most analysts had expected," he said. "The downturn has shifted from first gear to about third gear in about two weeks."

Oil prices fell to an eight-month low below $90 a barrel on speculation that the spreading financial crisis will exacerbate a global economic slowdown and further cut demand for crude oil. Light, sweet crude tumbled $3.82 to $90.06 a barrel on the New York Mercantile Exchange.

In corporate news, ailing Hartford Financial Services Group Inc. received a $2.5 billion investment from European insurer Allianz. Hartford's market value was halved last week on concerns it needed more capital to survive, but shares recovered $2.97, or 11 percent, to $31.29 on Monday.

EBay Inc. fell $1.14, or 6 percent, to $17.81 after announcing it will cut about 1,000 jobs, reducing its work force by 10 percent, to streamline the company. The online auction site expects restructuring charges of about $70 million to $80 million, mostly during the fourth quarter.

Wells Fargo & Co. said late Sunday its takeover agreement with Wachovia Corp. will go forward after a state appeals court blocked a lower court ruling that favored rival bidder Citigroup Inc. Wells Fargo said it will "continue working toward the completion of its firm, binding merger agreement" with Wachovia.

Shares of Wells Fargo rose 67 cents, or 2 percent, to $33.77, while Citi fell $1.71 cents, or 9.3 percent, to $16.68. Wachovia fell 18 cents, or 2.9 percent, to $6.03.

Eli Lilly & Co. said its board approved an acquisition of ImClone Systems Inc. for more than $6 billion. The deal, which also has been approved by ImClone's board, will create one of the leading oncology franchises in the biopharmaceutical industry. Eli Lilly fell $1.90, or 4.7 percent, to $39.35, while ImClone rose $1.76, or 2.7 percent, to $66.76.


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  • jailorjoe1978 Oct 6, 2008

    lets just vote for the worst guy (we all have differing opinions on who that is) and just let everything fall apart. the sooner we hit rock bottom the sooner the economy and government can be rebuilt correctly.

  • GWALLY Oct 6, 2008

    Play the NC have BETTER odds at winning it than getting the DO NOTHING CONGRESS to do something that HELPS YOU!!!!!!

  • sykesterryb Oct 6, 2008

    This is ultimately what happens when banks are deregulated and can go "hog wild" public. And people, like my father, in small hometown private banks and savings and loans saw this coming 15 years ago. I'm glad my dad is not here to see this mess today.

  • GWALLY Oct 6, 2008

    chivegas posted....."control of my SS, I could multiply it by at least a factor of 10-30 over 30 years. Unfortunately, neither party seems to care about the problem.

    You are exactly RIGHT...!!! NEITHER PARTY is intrested in YOU the TAX PAYER......only THEMSELVES, getting re-elected and the MONEY they can get from lobbiest!!!!! This bailout was for the POLITICIANS and THEIR WALL STREET buddies....nothing more and nothing less. Remember....WE AIN'T SEEN NOTHING YET!!!!!!!....DO NOTHING CONGRESS is were we NEED to clean HOUSE......NOW!!!!!!

  • WRALblows Oct 6, 2008

    This is simple and does not take complex micro-economic theory:

    Even if the banks start lending again today, right now, who among us can afford to borrow? Most Americans can barely pay the bills they have.

    This is the problem for which no solution has been offered.

  • chivegas Oct 6, 2008

    "Without privatization, I don't see how you can possibly, over time, make sure that young Americans are able to receive Social Security benefits."-John McCain, 2004.

    Unfortunately he's exactly right. I'm one of those "young" 30 something folks that won't see a dime under the current system. I have no doubt if I had control of my SS, I could multiply it by at least a factor of 10-30 over 30 years. Unfortunately, neither party seems to care about the problem.

  • ifcdirector Oct 6, 2008

    All of this and the best the American electorate can come up with are two socialists who want to give all of our money and treasure away to foreign countries. I think our country deserves what it gets. We could have had Ron Paul. This country will be an overrun Third World socialist backwater in 30 years.

  • jse830fcnawa030klgmvnnaw+ Oct 6, 2008

    The $700B bailout bill has a lot of additions not directly related to the actual bailout, so the total bailout amount is not true. Plus, I believe the stock market is in extreme flux so that greedy people can be more greedy, by showing that they can make the market go in turmoil and profit along the way.

    I remembered listening to a NPR program on Friday, and an economist stated that (paraphrasing) "The market collapse has not happened (like in the Great Depression), plus we are not so bad because the deposits were not lost due to the FDIC (and related) coverage." That could be true as the result of the Great Depression, but most people now live on credit with no savings at all. IMHO, even so-called "experts" in the field simply do not have a clue on how the "real" economy functions.

  • FromClayton Oct 6, 2008

    makes that $5 i just wasted on the nc lottery not look as bad. the fed wasted $700 bil.

  • Spartacus Oct 6, 2008

    I don't think he had to sign ANYTHING if he didn't like what he saw. He could have easily used the VETO stamp.