WWJ Newsradio 950 - Stocks Suffer Sixth Straight Day Of Losses

Traffic: 0 Incidents

Weather:

21°F

05:27am, 12/05/08

Local News

Posted: Wednesday, 08 October 2008 5:11PM

Stocks Suffer Sixth Straight Day Of Losses

Wall Street suffered a last-minute dip Wednesday as an emergency interest rate cut failed to alleviate investors' fears that the paralysis in the credit markets will set off a global recession.

The Dow Jones industrials, already down 875 points this week, wavered up and down during the trading day but at the end close was down by about 190 points.

The rate cut by the Federal Reserve and other leading central banks failed to convince investors that credit markets would soon relax and that banks would begin lending more freely to businesses and consumers. The Fed lowered rates by a half-point to 1.5 percent, saying in a statement that the turmoil in financial markets posed a further threat to an already shaky economy; it was joined in the rate cut by the European Central Bank, Bank of England, The Bank of Canada, the Swedish Riksbank and the Swiss National Bank.

But interest rate changes take months to work their way through the economy, and while investors clearly were happy with the central banks' actions, they were also well aware that in the near term, banks remain reluctant to lend because of fears they won't be paid back.

The fears on the Street have been exacerbated by the spread of the U.S. credit problems overseas. Several banks in Europe have had to be bailed out, and earlier this week, the governments of Germany, Ireland and Greece took steps to guarantee private bank deposits.

Speaking Wednesday, Treasury Secretary Henry Paulson acknowledged Global financial markets remain severely strained, underscoring the need for quick action to implement the government's $700 billion financial rescue plan.

The administration has been rushing to implement the bailout, but, Paulson cautioned, "Getting it right is as important as getting it done quickly." He said it would be several weeks before the program makes its first purchases of troubled assets.

He said even with this program to buy bad assets from financial institutions, some banks will fail. He also called for patience saying "the turmoil will not end quickly and significant
challenges remain ahead."

Stocks drew some early support from signs that the housing industry - whose troubles set off the series of events leading to the current credit problems - might be faring better than expected. The National Association of Realtors said pending home sales for August jumped unexpectedly, rather than falling 1.8 percent as had been predicted. Pending sales, which reflect signed contracts, rose 7.4 percent in August from an upwardly revised reading of 87 in July.

But investors who have been selling frantically because of the stymied credit markets eventually discounted the home sales report. They did some selected buying of stocks that have been turned into bargains by massive losses, but the advances - largely reflected in the major indexes - did not hold for long.

Broader stock indicators also fell. The Standard & Poor's 500 index slid 11.29, or 1.13 percent, to 984.94, and the Nasdaq composite index fell 14.55, or 0.83 percent, to 1,740.33.

With its precipitous drop of the past few weeks, Wall Street is approaching the magnitude of the losses it suffered during the bear market in the early part of this decade. By the time the Dow reached its low of that market, 7,286.27 on Oct. 9, 2002, it had fallen 37.8 percent from its record high close of 11,722.98, set in January 2000.

The Dow has now fallen about 33 percent from the closing high of 14,164.53, reached a year ago Thursday.

European indexes, which were down about 5 percent before the rate cut, pared only some of their losses. In Britain, the FTSE-100 fell 5.18 percent, Germany's DAX dropped 5.88 percent, and France's CAC-40 dropped 6.31 percent.

In Asia, Japan's Nikkei 225 closed 9.38 percent lower and Hong Kong's Hang Seng tumbled 8.17 percent hours before the rate cuts were announced; their declines showed the extent of the worldwide gloom. And Russia's two main stock exchanges were suspended because of a massive sell-off right after their openings.

The global interest rate cuts were done in hopes it would increase access to credit for struggling markets, Fox News Business analyst Alexis Glick told CBS' The Early Show. "This is one of many steps," Glick said of the rate cuts.

But analysts were cautious about the impact of the central banks' coordinated action.

"At first blush, while this is a big step, it is unlikely to prove sufficient to stem the rot. Additional rate cuts are likely and further measures to inject liquidity and re-capitalize banks are needed," said Marc Chandler, global head of currency strategy at the investment firm Brown Brothers Harriman.

David Wyss, chief economist for Standard & Poor's, said the losses around the world signal that markets are finally realizing that the credit crisis can't be resolved soon.

"There was a general disregard for risk going on in financial markets around the world, it wasn't just the U.S.," he said. "Now they're waking up to risk."

Investors had been extremely anxious in recent days for a rate cut, despite the Fed taking other steps this week to help the credit markets. On Tuesday policymakers unveiled a plan to buy massive amounts of commercial paper, the short-term debt used by companies, in a bid to reanimate the credit markets.

"With all of this occurring as a coordinated effort it is showing that everybody out there is trying to fight this thing, and that should bring some confidence back to the market," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "But, the big question now is can the credit market open for business."

Print Page

Email This Page