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Wall Street’s Tailspin

October 09, 2008 8:05 PM

Herman ABC News’ Charles Herman reports: Fear gripped Wall Street in the last hours of trading as stock markets plummeted despite spending most of the day slightly above or below the opening.

“When have stocks going down more then 2% a day for seven days in a row, that's a panic and that's a crash,” said Art Hogan, market analyst with Jeffries & Co.  “You can call it anything you like but its still a historic sell off and one that we've never seen before.”

The huge sell-off in the final moments was led in part by the 31% drop in General Motors –- a Dow component -– after the ratings agency Standard and Poor’s put the car company and its financing affiliate under review for a possible downgrade.  That would make it harder and more expensive for the nation’s largest automaker to get needed loans.

The news could not be worse for the struggling automaker as earlier in the day, an auto forecasting firm said it could foresee an “outright collapse” in 2009 in the global auto industry due to the crisis in financial markets and the possible downturn in the global economy.

Led by General Motors, all 30 members of the Dow Jones saw their stocks drop as the index lost 678.91 to close at 8,579.19 (-7.33%). General Motors stock dropped to its lowest in 58 years according to Bloomberg and Ford hit a 26-year low.

Today marks the one-year anniversary of the Dow reaching its all time high of 14,164.53.  With today’s close, the Dow has now lost nearly 40% since that record.  It has dropped 5585.34 points, or -39.43%.

It was the first time the Dow closed below 9,000 since June 30, 2003.  It is the worst bear market since the January 1973-December 1974 bear market, when the DJIA fell 45% from its peak to its trough.  Additionally, it is the largest seven-day percentage decline since October 26, 1987 and the lowest closing value since May 21, 2003.

Other indices also suffered today.  The Nasdaq lost 95.21 to close at 1,645.12 (-5.47%) and the S&P 500 lost 75.08 to close at 909.9 2(-7.62%).

So in addition to investors worrying about the survival of financial institutions and insurance companies, they can now add the auto industry to their list.  And like troubled banks, the auto industry has also received help from the government. In the recently approved budget to fund the government, Congress provided the industry with $7.5 billion to fund a $25 billion loan program.

But even more remarkable has beem the huge sell-off at the end of the day which has occurred the past three days as the closing bell draws closer.

TUESDAY: Sell off started at around 2:25pm ET (-2.5%)

WEDNESDAY: Sell off started at around 3:30pm ET (-3.3%)

THURSDAY: Sell off started at 2:59pm ET (-5.5%)

This could be in due in large part to when trades of hedge funds and mutual funds are executed. 

The $2.6 trillion overleveraged hedge fund industry can be forced to sell at the end of the day to cover losses. The average returns for hedge fund returns fell nearly 5% last month and this marks the biggest loss in 10 years. For the year, hedge fund average returns are down nearly 10%.

There could also be a veritable “run on the mutual fund” as average Americans, perhaps panicked to see their investments dramatically drop in value, have hit the sell button. 

“It's a reflection of how much mutual funds have to raise in terms of redemption,” said Hogan about the last minute selling of stocks.  “That means people are selling mutual funds, the mutual funds are selling stocks, and unfortunately that becomes very self fulfilling.”

In the two weeks ending September 22, approximately $185 billion has been pulled out of mutual funds and put into checking and savings accounts, including CDs, according to TrimTabs.  In the prior four months, $40 billion was pulled out and put into the traditional bank accounts.

On top of this, credit markets continue to remain constricted, even after aggressive steps taken by central banks around the world to cut interest rates.  There were signs today that the Treasury Department is considering making direct cash payments to banks in return for some form of shares of the bank in order to give banks more money so they begin to lend once again.

“If the banks and the markets aren’t performing their financial intermediary function, corporations and other businesses can’t fund their day-to-day activities,” said Doug Pate, market strategist with J.W. Seligman.

But perhaps in all this panic, there could be a measure of hoped-for-calm to come soon "When emotions totally rule the decisions,” said Sam Stovall, Chief Investment Strategist with S&P Equity Research, “that usually is the sign that we’re getting close the bottom.”

Dow Jones Industrial Average

Today is the 1-year anniversary for the DJIA of its peak and the six year anniversary from its last bear market low.

As of October 9, 2008

         The DJIA, down 678.91 points, or -7.33%, to close at 8579.19.

         First time closing below 9,000 since June 30, 2003.

         Closed at its lowest level of the day.  The last time the DJIA had an intra-day low below 9,000 was on August 6, 2003.

         Worst bear market since the January 1973-December 1974 bear market, when the DJIA fell 45% from its peak to its trough.

         Down for the seventh consecutive trading day and eight of the last nine.

         Down 2271.47 points, or 20.9%, over the last seven trading days.

         Largest seven-day point decline in its history.

         Largest seven-day percentage decline since October 26, 1987.

         Longest losing streak since the seven day decline that ended on July 16, 2002.

         Lowest intra-day level since May 27, 2003.  The last time the DJIA had an intra-day level below 9,000 was on August 6, 2003.

         Lowest closing value since May 21, 2003.

         Largest one-day point decline since September 29.

         Largest one-day percentage decline since October 26, 1987.

         It has dropped 5585.34 points, or -39.43%, from its record close of 14164.53, hit on October 9, 2007.

         It has dropped -34.30% from its 2008 close high of 13058.20, hit on May 2.

         Month-to-date, the DJIA is down -20.93%. In September, it closed down 6.00%.

         Year-to-date, it is down -35.32%.

         Off 38.8% from 52 weeks ago.

October 9, 2008 | Permalink | User Comments (48)

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Honestly as soon as I found out that Obama is ahead at polls few weeks ago, I called my broker to sell every single stock, mutual funds, IRA's all!
HEY OBAMA GO GET MONEY FROM SOMEWHERE ELSE FOR YOUR WELFAE RATS!
I PROTEST OBAMA's Capital gains Taxesd!
So do Americans too!

Posted by: I am afraid of Obama! | Oct 9, 2008 8:32:01 PM

Things will get worse. We still have poor earnings, the auto/airline mess, and an upcoming poor retail season.

Posted by: Brian | Oct 9, 2008 8:32:37 PM

What a mess... this is not Bush fault... but certainly... he left the country in shreds...

Posted by: Benjalamelami | Oct 9, 2008 8:34:08 PM

George Bush has solidified his status as the worst President ever. Can you imagine John McCain, then if something happens to him, Sarah Palin dealing with this mess?

Posted by: doug | Oct 9, 2008 8:37:17 PM

this is not only yhe meltdown but the fall of neo capitalism
the greenback must be change to worldwide dollar basd upon other tools like commodity, euro yen yuan gold etc
we see the new currency system as benchmark replace usdlr after gold standrad collapese

Posted by: Gunawan | Oct 9, 2008 8:40:22 PM

Obama wants to jack up taxes... he's a jack off.....

Posted by: fred | Oct 9, 2008 8:41:21 PM

To all you Obama supporters, you think this is bad- just wait till he is in office! This is nothing! You will all see what real financial hell is when he is in office - that is of course unless you are a minority baby producing uneducated loser who sits home waiting for more handouts! Give me more,Give me more handouts! The motto of Obama supporters!

Posted by: Heidi | Oct 9, 2008 8:42:16 PM

glad half the demo_C_R_A_P party are R+E+D+N+E+C+K+S and won't vote for Obama...

Posted by: fred | Oct 9, 2008 8:43:16 PM

And...I am afraid of ignorant posters!

Posted by: Ivy | Oct 9, 2008 8:43:24 PM

And just think, this is just the beginning after we get the Obama-Rama show started up in January.

Posted by: Mickey 13 | Oct 9, 2008 8:43:46 PM

get rid of capital gains taxes for 2008 and for the next couple of years and watch the investirs come back. Obama announcing that he is going to raise capital gains taxes I my adds to wanting to sell off. Obama will be a disaster for job creation.

Posted by: brad | Oct 9, 2008 8:53:34 PM

"HEY OBAMA GO GET MONEY FROM SOMEWHERE ELSE FOR YOUR WELFAE RATS!"

I would rather see my tax dollars go to poor folks than to see it go where Bush/McCain want to put my taxes: Corporate welfare (Halliburton, Exxon, AIG, etc, etc).

Posted by: Mark from atlanta | Oct 9, 2008 8:55:18 PM

doing away with not only people like Fuld but also doing away with people and the system that hired and promoted people like Fuld must be part of the clean up. Also flush Congress down the tubes. I'm voting against all my incombents....

Posted by: fred | Oct 9, 2008 8:58:35 PM

Crime does pay, as congress, politicians and wall street. We have just see the biggest rip off in our history and there are no indications that anyone is going to jail. Why is that? It's because the same people who were sworn in to represent the people and uphold the law, are the same people who ripped us off.
I played by the rules:
Worked hard.
Saved my money.
Bought a home with my hard earned dollars.
Raised a family.

I now have a home that is less than what I bought it for.
Over 1/2 of my savings are gone.
My kids have moved back home as a result of the economy.

Still, no one in jail.

Now the democrats wantt to help me by socializing our government, as if the same goivernment that got us into this mess, will now get us out of it. Tell me one thing the government does right?

I will no longer be playing by the rules. It's everyman for himself now. What ever it takes to secure my families future is open game from here on out.

The government is now enemy # 1

Posted by: Bob | Oct 9, 2008 8:58:58 PM

And I'm specially pleased that all my incumbents are demo_C_R_A_P party... FLUSH!

Posted by: fred | Oct 9, 2008 9:01:05 PM

"Obama will be a disaster for job creation.".........And McCain will bust the economy altogether. You saw that he already changed his brilliant plan to buy up mortgages. He doesn't have a clue about anything. At least Obama thinks and will have sharp people on the problem.

Posted by: Mark | Oct 9, 2008 9:08:12 PM

Sheesh, now Republicans are even blaming Democrat presidents *not yet in office*. Traitors, the whole lot of them.

Posted by: Markor | Oct 9, 2008 9:08:20 PM

A tradeable bottom will be in place soon. Although not "The Bottom". This is panic selling. After the uncertainty of the election is over, I expect a nice 3-5 month rally into the 2nd quarter. Then the grand finale drop starts. But what do I know ?

Posted by: Uncle Moe | Oct 9, 2008 9:09:41 PM

John McCain and Sarah Palin are both "honorable" candidates, like the conspirators who killed Caesar and said they did it for the good of Rome. I guess they think slinging mud, no make that blood, makes them honorable and they can justify it by saying their blood letting campaign is for the good of this country because they are such patriots. A true United States Patriot stands up to unjust wars. A true United States Patriot does not support lies about the war in Iraq. A true United States Patriot does NOT send this nation's young people into an unjust war to destroy a country so it can be controlled by the Republican oil men. McCain and Palin are NOT patriots. Both are only interested in their own self-serving benefits of office. Their recent lies, cheap tricks, and downright stupid antics should make EVERY PATRIOT IN THIS COUNTRY VOTE OBAMA-BIDEN. God, grant us the wisdom to select cool-headed, wise leaders, who seek more level-headed solutions than merely BOMB,BOMB, BOMB!

Posted by: Terresa | Oct 9, 2008 9:12:39 PM

Government intervention may lengthen the cycle but it can not stop the boom to bust. I originally posted this before ( about three weeks ago )the Scam Bailout, since then things have accelerated, but that only lengthens the recovery time. We are in the Great Bear which has been artificially been held at bey. In about a year and a half, when the real estate market is at 50 percent, and DOW has stabilized at between 7800-8000, NASDAQ 900-950, S&P 700-750, it will be the bottom. Then it will be safe to go back. Until then it is a Day trader's market. Gambler's paradise. The bailout is just a waste of resources. In fact it will compound the problem. Much like the physicians of old who would bleed the patient, to give the appearance of action. The Scam Bailout is an action to give the appearance of care and concern, but will in truth deplete needed resources for healing and extend the time required for recovery. We are looking at a very rough 3 to 6 years, according to who is president and how much more Socialistic debt is added.
Some people just refuse to learn and therefore make the same mistakes over and over. This no time for amateurs nor on the job training. For you still playing the blame game or fighting the party wars, you are the same type of idiots as Nero, fiddling while Rome burned. The crash has been artificially held off for over forty years. The Great Bear is now loose.

Posted by: Sean Michael | Oct 9, 2008 9:24:27 PM

Obama will probably win. But if not, each candidate has pros and cons to which the market will react. I'm hoping after the election, there will be less hot-headedness and bit more sanity. This bear market has a long way to go. In the end, those who adjust to the conditions will be ok. Get out of debt, save and wait for better days.

Posted by: Uncle Moe | Oct 9, 2008 9:24:47 PM

Soros has Crashed the financial System of many Countries.


He knows how to play the system to do as he wants.

He wants a new Government and a New Finacial system in America.

He is the basically the main man in the banking of Country Georgia.

He has tried to break other banks in the world.

He is the money wads behind the Democratic Party

Would the Democrats be living up to what they said, A win at all cost?

Posted by: ah_heck | Oct 9, 2008 9:26:13 PM

Do you wonder why the DOW went down after the vote for the SCAM BAILOUT? Because it marked the end of free representative America! Communism is bad for business !
My fellow Americans, you have just witnessed the end of the USA and the constitution if this is allowed to go unchallenged. Our so called Representatives have, against expressed desires of those they swore to represent, blatantly sold us and our children into slavery. The SCAM BAILOUT bill will not cure the problem. It will compound it. There are three things to do. Mount a Constitutional challenge, vote each who is up for reelection and voted yes out of office, and start recalls on those who are not up for reelection this election. Save THE USA while we still have the time. To say I am throughly disappointed and discussed, is an under statement. The true feeling is much like the feelings I have had putting fallen comrades in body bags. Those who voted for this, PORK BARREL SCAM BAILOUT, have put The USA and The Constitution in a body bag.
This is supposed to be an election for president not PR rock star. You are hiring the CEO of Firm USA. Who do you want to run the firm, a manager with over 25 years experience or the newly hired stockboy? If you complain about Palin's experience to be VP candidate where does that leave Obama? She has more real experience than he has. Or is Obama really running as Biden's VP? We have no time for an amateur nor for on the job training. Working Citizen will lose . Banks and Wall Street are not Citizens they are Business entities. The government will borrow (at interest) the money needed from the Fed. The Fed will create the dollars out of thin air (refer to Germany 1923), devaluing the U.S. currency. Taxpayers will repay the loan. Like the economy of the Carter years, The scale and damage will be about 300 fold more severe. Those business entities which cannot survive will be bought up, as is already happening ( refer to Banks acquired.) Politicians couldn't run a business if their lives depended on it. This is a political solution that will compound the problem. I say Fasten your seat belts everyone. It's going to be a long, bumpy ride. As one of those who survived the Carter years, “you ain't seen nothing yet!" But wasting resources will not cure the problem. America and the Constitution just got sold out.

Posted by: Sean Michael | Oct 9, 2008 9:29:05 PM

Polls are like statistics and accounting statements, not to be believed unless you falsified them your self. Polls were even for Reagan vs Carter, the election was a landslide for Reagan. 487 to 49 electoral votes. Hope we see the same for Mc Cain.
The bailout reminds me of a young lady who was told her bank account was overdrawn and remarked" I can't be out of money! I'm not out of checks!" Is that the Senate's excuse? No Bailout! They are trying to write a check they can't cash. But come election day I bet the American People can cash a check.
No time for an amateur or OJT

Posted by: Sean Michael | Oct 9, 2008 9:32:14 PM

Every senator and congressman that voted in favor of the bailout needs to be fired! Vote them out of office, including Obama and McCain. Vote 3rd party. It's time they know that this is OUR country and WE THE PEOPLE will not tolerate business as usual in Washington.

Posted by: Lorretta | Oct 9, 2008 9:36:12 PM

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