Debate Politics Forums - View Single Post - Will Monday See a Fed-Driven Boost to the Stock Market?

donsutherland1 · 07-14-08, 04:16 PM

The Tale of an All-Too-Short Stock Market Bounce…

What had started as a nice rally, with the Dow Jones Industrials up more than 138 points at one point in the opening 30 minutes of trading following Sunday’s disclosure that the Federal Reserve had authorized the New York Federal Reserve to lend funds to Fannie Mae and Freddie Mac, crumbled later in the morning on rumors that National City Corporation ($155.0 billion in assets) and Washington Mutual Bank ($319.7 billion in assets) were facing difficulties. Both banks dwarf IndyMac ($32.3 billion in assets), which was taken over by the FDIC on Friday. Through much of the rest of the day, stocks held onto their losses, with rally attempt after rally attempt being beaten back.

But that changed during the final 30 minutes of trading for the Dow. Shortly after 3:30 pm EDT, the Dow scaled what seemed to be Mount Everest to break onto the summit of positive territory. However, as if exhausted by the effort, the Dow succumbed shortly thereafter. At the end of trading, both the Dow Jones Industrials and S&P 500 slipped to new closing lows for the year.

The Dow Jones Industrials fell to 11,055.19. That is its lowest close since the Dow closed at 11,051.05 on July 24, 2006.

To date, the Dow Jones Industrials has now fallen 22.0% from its October 2007 peak of 14,164.53. In inflation-adjusted terms, the Dow is now 25.2% below its peak.

The S&P 500 closed at 1,228.30. That is its lowest close since June 13, 2006 when it closed at 1,223.69. To date, the S&P 500 has now fallen 21.5% from its October 2007 peak of 1,565.15. In inflation-adjusted terms, the S&P 500 is now 24.8% below its peak.

Fannie May (down more than 5%) and Freddie Mac (down more than 8%) suffered another ghastly day of trading. Very early, Fannie Mae had been up almost 32% and Freddie Mac 26% from Friday’s dismal close.

With respect to rumors concerning National City Bank, CNN reported, “…market rumors spread that the Cleveland-based bank was on the verge of collapse.” Meanwhile, Bloomberg.com reported:

Treasuries gained, pushing two-year note yields down the most in almost five months, as stocks fell on concern that U.S. banking-system losses may be worsening.

Predictions of wider losses overshadowed the Treasury Department's support of Freddie Mac and Fannie Mae. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital.

It should be noted that the demise of real estate bubbles has typically been followed by a banking crisis in which numerous financial institutions fail. The U.S. is likely in the very early stages of such a situation. Already, 2008 has witnessed more bank failures than 2007. Since 2002, bank failures have occurred as follows:

2002 12
2003 3
2004 4
2005 0
2006 0
2007 3
2008 5

Source: Federal Deposit Insurance Corporation

In the midst of the eye of the trading storm that passed over National City Corp., Washington Mutual Bank, along with the two troubled GSEs, crude oil quietly edged higher to a near-record closing price of $145.18.

Tomorrow, the producer price index will be released. Whether inflationary pressures will be ratcheted even higher to further drain Wall Street of its diminishing reservoir of confidence remains to be seen.

07-14-08, 04:16 PM	#6 (permalink)
donsutherland1 Moderator Mod team member Join Date: Oct 2007 Last Online: Today 08:29 PM Location: New York Posts: 2,463 Thanks: 812 Thanked 1,566 Times in 874 Posts Lean: Centrist Gender: Awards:	Re: Will Monday See a Fed-Driven Boost to the Stock Market? The Tale of an All-Too-Short Stock Market Bounce… What had started as a nice rally, with the Dow Jones Industrials up more than 138 points at one point in the opening 30 minutes of trading following Sunday’s disclosure that the Federal Reserve had authorized the New York Federal Reserve to lend funds to Fannie Mae and Freddie Mac, crumbled later in the morning on rumors that National City Corporation ($155.0 billion in assets) and Washington Mutual Bank ($319.7 billion in assets) were facing difficulties. Both banks dwarf IndyMac ($32.3 billion in assets), which was taken over by the FDIC on Friday. Through much of the rest of the day, stocks held onto their losses, with rally attempt after rally attempt being beaten back. But that changed during the final 30 minutes of trading for the Dow. Shortly after 3:30 pm EDT, the Dow scaled what seemed to be Mount Everest to break onto the summit of positive territory. However, as if exhausted by the effort, the Dow succumbed shortly thereafter. At the end of trading, both the Dow Jones Industrials and S&P 500 slipped to new closing lows for the year. The Dow Jones Industrials fell to 11,055.19. That is its lowest close since the Dow closed at 11,051.05 on July 24, 2006. To date, the Dow Jones Industrials has now fallen 22.0% from its October 2007 peak of 14,164.53. In inflation-adjusted terms, the Dow is now 25.2% below its peak. The S&P 500 closed at 1,228.30. That is its lowest close since June 13, 2006 when it closed at 1,223.69. To date, the S&P 500 has now fallen 21.5% from its October 2007 peak of 1,565.15. In inflation-adjusted terms, the S&P 500 is now 24.8% below its peak. Fannie May (down more than 5%) and Freddie Mac (down more than 8%) suffered another ghastly day of trading. Very early, Fannie Mae had been up almost 32% and Freddie Mac 26% from Friday’s dismal close. With respect to rumors concerning National City Bank, CNN reported, “…market rumors spread that the Cleveland-based bank was on the verge of collapse.” Meanwhile, Bloomberg.com reported: Treasuries gained, pushing two-year note yields down the most in almost five months, as stocks fell on concern that U.S. banking-system losses may be worsening. Predictions of wider losses overshadowed the Treasury Department's support of Freddie Mac and Fannie Mae. Washington Mutual Inc. posted its biggest drop ever and National City Corp. tumbled to a 24-year low after last week's collapse of IndyMac Bancorp Inc. spurred speculation that more regional banks may be short of capital. It should be noted that the demise of real estate bubbles has typically been followed by a banking crisis in which numerous financial institutions fail. The U.S. is likely in the very early stages of such a situation. Already, 2008 has witnessed more bank failures than 2007. Since 2002, bank failures have occurred as follows: 2002 12 2003 3 2004 4 2005 0 2006 0 2007 3 2008 5 Source: Federal Deposit Insurance Corporation In the midst of the eye of the trading storm that passed over National City Corp., Washington Mutual Bank, along with the two troubled GSEs, crude oil quietly edged higher to a near-record closing price of $145.18. Tomorrow, the producer price index will be released. Whether inflationary pressures will be ratcheted even higher to further drain Wall Street of its diminishing reservoir of confidence remains to be seen.