Wall Street ends mixed after 8 days of massive losses; Dow swings over 1,000 pts
NEW YORK (AP) -- Wall Street capped its worst week ever with a wild session Friday that saw the Dow Jones industrials rocket within a 1,000 point range before closing with a relatively mild loss and the Nasdaq composite index actually end with a modest advance. Investors were still agonizing over frozen credit markets, but seven days of massive losses made many stocks tempting for traders looking for bargains.
The Dow lost 128 points, giving the blue chips an eight-day loss of just under 2,400. The average had its worst week on record in both point and percentage terms, as did the Standard & Poor's 500 index, the indicator most watched by market professionals.
But there were signs Friday that some investors might believe the market was at or near a bottom. Just one day earlier, selling accelerated in the last hour of trading, giving the Dow a loss of 678 points, as many market players fled, while Friday, many people were clearly buying. And the Russell 2000 index, which tracks the movements of smaller company stocks, had a 4.66 percent gain Friday; small-cap stocks are often first on investors' shopping lists when they think a market turnaround is at hand.
The hair-trigger mentality of the market -- a reflection of the intense anxiety on the Street -- was evident from the opening bell. The Dow fell 696 points in the first 15 minutes, recovered to an advance of more than 100 before the first hour was over, then turned sharply lower again before moving in swings of hundreds of points at the day's end.
Investors have spent much of the past month shuddering over a credit market that remains frozen, posing a threat to the economy. But Friday's gainers included financial stocks, the ones most decimated amid the ongoing banking and credit crisis.
The major indexes' sharp swings throughout the day were likely exacerbated by the computer-driven "buy" and "sell" orders that kicked in when prices fell far enough to make some stocks look like attractive bets or make other investors want to exit the market. The spurts of buying didn't reflect an easing of the market's despair, and trading is likely to remain volatile when the market reopens on Monday.
"Fear has been running rampant all over the Street. Fear and greed, that's what rules the Street. I think the carcass has been stripped to the bone," said Dave Henderson, a floor trader on the New York Stock Exchange for Raven Securities Corp.
According to preliminary calculations, the Dow fell 128.00, or 1.49 percent, to 8,451.49. At its low point Friday, the Dow was down 696 at 7,882.51, just 60 points above its low in Wall Street's last bear market, 7,286.27, reached Oct. 9, 2002. It crossed the line between gains and losses 32 times during the session.
The Dow rebounded from a low of 7,882.51 for the day -- the worst trading level since March 17, 2003. Still, its closing level Friday was the lowest since April 25, 2003.
The Dow has lost 1,874.19 points, or 18.2 percent, over the past week. Its dismal performance outdid the week that ended July 22, 1933, which saw a 17 percent drop -- and back then, during the Great Depression, there were six trading days in a week.
Broader stock indicators were mixed. The Standard & Poor's 500 index fell 10.70 or 1.18 percent, to 899.22, while the Nasdaq composite index rose 4.39, or 0.27 percent, to 1,649.51.
The Russell 2000 rose 23.28, or 4.66 percent, to 522.48.
President Bush said Friday the government's efforts to rescue the financial sector was powerful enough to succeed but that it would take some time to be fully implemented.
His remarks came as finance ministers and central bankers from the Group of Seven nations gathered Friday in Washington to discuss the economic meltdown. One of the potential remedies expected to be reviewed at the meeting is for governments to guarantee lending among banks.
Most major central banks around the world slashed interest rates this week after continuing problems in the credit market triggered concerns that banks will run out of money. Analysts have described the mood on trading floors this week as panicked at times, with investors bailing out of investments on fears there is no end in sight to the financial carnage.
A stream of selling forced exchanges in Austria, Russia and Indonesia to suspend trading, and those that remained opened were hammered. The rout in Australian markets caused traders there to call it "Black Friday."
European stocks sank Friday, with Britain's FTSE-100 falling 8.85 percent, German's DAX declining 7.01 percent, and France's CAC-40 ending down 7.73 percent. In Asia, the collapse of Japan's Yamato Life Insurance caused already nervous investors to pull even more money out of the market -- the Nikkei 225 fell 9.6 percent.
An index considered to be Wall Street's fear gauge reached record highs on Friday in another sign of massive investor anxiety. The Chicago Board Options Exchange Volatility Index, known as the VIX, rose to an all-time intraday high of 76.94 Friday. The VIX, which usually trades under 50, tracks options activity for the companies that make up the S&P 500.
Still, prospects of further government help and, perhaps, attractive prices helped parts of the financial sector show signs of life. Big national banks were among the gainers, including Bank of America Corp., which rose $1.24, or 6.3 percent, to $20.87. Some smaller banks also rose, including Fifth Third Bank Corp., which advanced 67 cents, or 6.9 percent, to $10.40.
Not all financials enjoyed a bounce, however. Morgan Stanley Inc. fell $2.77, or 22 percent, to $9.68 as investors worried that even with a major investment from Japan's Mitsubishi UFJ Financial Group the company was still facing troubles. Meanwhile, Goldman Sachs Group Inc. fell $12.55, or 12 percent, to $88.80.
Citigroup Inc. said late Thursday it was suspending its bid to acquire Wachovia Corp., which will be acquired by Wells Fargo & Co. Citigroup rose $1.18, or 9.1 percent, to $14.11, while Wells Fargo fell $1.06, or 3.9 percent, to $28.31. Wachovia surged $1.55, or 43 percent, to $5.15.
Financials were most prominent among the smattering of stocks that rose in the S&P 500, though technology stocks generally advanced. Apple Inc. rose $8.06, or 9.1 percent, to $96.80, while eBay Inc. rose 77 cents, or 4.8 percent, to $16.73.
Investors appeared unfazed by final results arriving in afternoon trading from an auction Friday that set the price of debt issued by now bankrupt Lehman Brothers Holdings Inc. at 8.625 cents on the dollar, down from a preliminary estimate of 9.75 cents.
The auction was for credit default swaps, which are contracts used to insure against the default of financial instruments like bonds and corporate debt. Traded in a $60 trillion, unregulated market, many of the instruments have fallen sharply because of their ties to bad mortgage debt. Those big losses and nervousness about who holds what CDS has made financial institutions hesitant to lend to one another. The auction could help the market determine which companies are most at risk from CDS losses.
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
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Dow falls 'only' 128 points
Commentary: Stock market missed turning in a Key Reversal Day
By MarketWatch
Last update: 5:00 p.m. EDT Oct. 10, 2008The following First Take is real-time analysis and opinion by the MarketWatch commentary team.
ANNANDALE, Va. (MarketWatch) -- For a brief and all-too-fleeting moment late in Friday's session, it looked as though the stock market would turn in what's known as a Key Reversal Day.
But, alas, it was not to be.
A Key Reversal Day, at least according to the standard definition, occurs when the market hits a new intraday low and then closes higher. Many technical analysts consider them to be bullish.
Just such a day was shaping up nicely near the close, since the Dow Jones Industrial Average ($INDU:Dow Jones Industrial Average
News, chart, profile, more
Last: 8,451.19-128.00-1.49%
4:30pm 10/10/2008
$INDU 8,451.19, -128.00, -1.5%) early in Friday's session had been down nearly 700 points -- a new low for the bear market that began one year ago.
And then, in the last hour of trading, the Dow battled back into positive territory, and at about 30 minutes prior to the close was ahead by a couple of hundred points. If the market could only hang on, a Key Reversal Day would have been registered.
But it couldn't.
The Dow finished down 128 points for the day and nearly 1,900 points for the week --making the week the worst in the gauge's 112-year history, in terms of points lost as well as percentage decline (22.1%).
Disappointing as Friday's close was, however, investors perhaps can take some solace from the fact that the Dow closed nearly 500 points off its low. It could have particularly damaging to the collective morale for investors to contemplate all weekend a much bigger loss.
It's a strange testament to how bad the market has been that a "mere" 128-point loss can seem to be such good news. See Market Snapshot.
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US STOCKS-Wall St turns higher on G7 action hope
NEW YORK, Oct 10 (Reuters) -U.S. stocks turned positive and the Dow industrials jumped more than 200 points in late afternoon trading on Friday, led by financials in a turbulent session with analysts citing bets that the finance chiefs of the world's major economies will take coordinated steps this weekend to confront the financial crisis.
"We're kind of rallying late here on speculation about what the G7 will do over the weekend," said John O'Brien, senior vice president at MKM Partners LLC in Cleveland.
Earlier, all three major U.S. stock indexes were sharply lower as panicked investors dumped stocks on mounting fears that frozen credit markets would push the global economy into recession.
The Dow Jones industrial average .DJI was up 273.75 points, or 3.19 percent, at 8,852.94. The Standard & Poor's 500 Index .SPX was up 16.55 points, or 1.82 percent, at 926.47. The Nasdaq Composite Index .IXIC was up 42.25 points, or 2.57 percent, at 1,687.37. (Reporting by Kristina Cooke and Leah Schnurr; Editing by Jan Paschal)
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Will Fed's Moves Work? If Not, What Can It Do Next?
by Chris Isidore CNN Money
Efforts by governments worldwide to stop a slide in financial markets haven't worked yet and the Federal Reserve and the U.S. Treasury may have to consider more dramatic measures.
This week the Fed has moved to pump potentially trillions of additional dollars into the nation's banks and leading corporations. And it led the way on emergency interest rate cuts by central banks around the globe Wednesday morning.
As the global selloff continues, the U.S. government is now said to be considering steps that include taking direct investments in banks, as well as guaranteeing their debt and insuring all deposits.
But experts say the Fed's actions may not be enough to stop the global economy from plunging into the worst downturn seen in at least 25 years, if not since the Great Depression.
Even those praising the Fed say it's not clear what it would take to calm markets.
"I think they've been pretty inventive and pretty unrestrained," said Tom Schlesinger, executive director of the Financial Markets Center, a think tank that follows the Fed. "But I'm not sure what it would take to stem the fear in the markets. It's such a contagious and irrational phenomenon, and feeding on itself and compounding itself day by day."
What the Fed Has Already Done....
On Tuesday, the Fed unveiled a plan to lend directly to the nation's major companies by buying up an unlimited amount of the $1.3 trillion in commercial paper, short-term loans that businesses use to operate day-to-day, on the market.
The Fed also announced it was doubling the size of its term auction facility, a program the Fed created last year to lend banks money for up to 85 days at a time, to $300 billion. The Fed added it was prepared to boost the term auction facility to $900 billion by year's end.
Despite this, banks still appear to be reluctant to lend money and stock markets around the globe have continued to fall. On Thursday, the Dow industrials plunged nearly 700 points to a five-year low and markets worldwide plunged.
Experts say there are worries that the global economy is now sliding towards recession and that there is relatively little that the Fed or other central banks can do to stop that. The International Monetary Fund warned Wednesday that the world's economy will slow sharply this year and next.
"They're looking a bit more impotent with each action," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute, about the Fed.
Achuthan said that since major banks around the world are cutting back on their lending, that dwarfs the economic muscle of the world's central banks and governments.
But in a speech Tuesday, Federal Reserve chairman Ben Bernanke vowed that the Fed would do whatever it takes to try to fix the credit crunch.
"To support growth and reduce the downside risks, continued efforts to stabilize the financial markets are essential," he said. "The Federal Reserve will continue to use the tools at its disposal to improve market functioning and liquidity."
Experts say they don't think Wednesday's global rate cuts are the last steps the Fed plans to take. And many have suggestions as to what the Fed might do to get banks in the business of lending again.
More Cuts On the Way?
The first step is probably the most traditional one - further rate cuts.
According to closely watched interest rate futures, investors are pricing in an 84% chance of another quarter point cut at the Fed's next meeting, a two day session that concludes on Oct. 29. That would leave the central bank's key fed funds rate at 1.25%.
Many experts believe the Fed would not want to take rates below 1% - which is where they were for 12 months in 2003 and 2004. Some have blamed those low rates for helping to create an environment of easy lending that contributed to the housing bubble.
Yet, the Bank of Japan's key interest rate is already at 0.5%. And some argue that it would be justified for the Fed to lower rates to that level, or even to 0%, because of current conditions.
"Why not? If you're facing a situation where you need to lower the rates all the way to zero to keep the economy from going over the precipice, why wouldn't you do that," said Lyle Gramley, a former Fed governor now working as an economist for the Stanford Group.
Regardless of how far the Fed is willing to cut, more cuts are expected by other central banks, most notably the European Central Bank. That's because the ECB had not been cutting rates during the past year and have more room to lower rates.
Other Options for the Fed
Bill Gross, the chief investment officer at giant bond manager Pimco, wrote this week that another step the Fed could take is to become a clearing house for trades of a variety of exotic and arcane financial instruments such as collateralized debt obligations or credit default swaps. These have traditionally been traded directly between two firms rather than in an open market.
"We believe that the Federal Reserve must now act as a clearing house, guaranteeing that institutional transactions clear," Gross wrote in his most recent commentary.
Schlesinger agreed, saying that while the Fed would normally never think to take such an active role in markets, these are far from normal times.
Gramley said he also believes that the Fed may supplement its efforts to help larger firms by starting to lend money to small and medium sized businesses as well.
The Fed could agree to buy small business loans from banks that are backed by collateral, such as inventories or equipment. Gramley said the loans could be purchased on a non-recourse basis, meaning the Fed, and not the bank, assumes the risk if the loan goes bad.
That would free the banks from the need to raise more capital if the loans sour and could make them more willing to make such loans once again.
Can Anything Work but Time?
Still, Schlesinger is worried that there is little that the Fed or other government entities can do to fix the current crisis of confidence gripping financial markets.
A painful recession may be the only way for the markets to work the problems out of the system - with further declines in housing prices and deeper job losses likely a result.
"I wish I had a silver bullet. But the fear is disconnected from underlying fundamentals at this point," said Schlesinger. "What will thaw it out is a sense among lenders that a modicum of trust has been restored in these complicated, opaque markets."
But Gramley said that even if recent or future actions by the Fed aren't enough to stop the economy from slowing further, they can still have a positive effect.
"Even if it's not going to prevent the recession from deepening, what it can prevent is a huge meltdown," said Gramley.
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