Stocks plummeted in the final hour of trading today with the prospects of a bailout of the U.S. automobile industry dimming. Crude oil prices fell lower than they had been in more than three years.
After closing below 8000 for the first time since 2003 yesterday, the Dow Jones industrial average closed down 5.6 percent, or 445 points — the lowest close since October 2002.
The Standard & Poor’s 500-stock index was down 6.7 percent, or 54 points. The tech-heavy Nasdaq was down 5.1 percent, or 70 points.
The markets’ recent volatility has dashed investors’ hopes that the worst of the market sell-offs were finished and stocks would not fall below the low points set last month. Instead, downbeat economic data and pronouncements from bellwether companies have put the focus on the fight ahead as the country grapples with a recession. That has been exacerbated by concerns automakers will not be able to secure a bailout from Capitol Hill.
“The economic news continues to be quite bleak,” said Peter Cardillo, chief market economist with New York-based Avalon Partners. “We have a market that is pricing in a global recession that will probably last longer than most people anticipated.”
Investors have rushed into safe investments, including government bonds. The price of gold, a traditional safe haven during market turmoil, was up 2 percent to about $750 an ounce.
The auto sector was under pressure today after Democratic aides in Congress said an auto bailout bill won’t be taken up until after Thanksgiving. The leaders of Detroit’s big three automakers — Ford, General Motors and Chrysler — have warned Congress that they are at risk of collapsing.
If even one auto maker files for bankruptcy, the impact would ripple throughout the economy, said Sean Ryan, a banking analyst with New York-based Sterne Agee. “It would make 2009, without a question, a much worse year than it would have otherwise been,” he said. “You would have continued pressure on home prices, wrenching up consumer debt, credit cards.
General Motors, which has said it could run out of money next year, fell as much as 27 percent today but eventually was up 3.2 percent. It was recently the best performer on the Dow. Ford was down as much as 9 percent but was up 10.3 percent by closing time. Chrysler is privately held.
“The market is fearful of the consequences if Detroit is allowed to fail and what that would mean in terms of further economic decay,” Cardillo said.
Citigroup, the large New York bank, continued its slide today. It has been battered by investors all week and fallen to a multiyear low since it announced that it would shed 53,000 jobs.
The company’s stock was down 26.4 percent today despite a sign of support from Saudi Prince Alwaleed bin Talal, who said he would increase his stake in the firm to 5 percent. “Prince Alwaleed is fully confident that Citigroup’s universal banking model and global franchise, will make it a long term winner in the financial services industry,” a statement from his investment company Kingdom Holding Co. said.
Prince Talal has been a consistent supporter of Citigroup’s business model, although it hasn’t translated into good returns for the company’s shareholders, said Ryan from Sterne Agee. Citibank has a global reach that puts it at risk, he said.
“Given the increasingly global character of the economic slowdown, the diversification doesn’t help and instead you have lots of fires popping up on all sides,” he said.
Citibank is leading the financial sector down, but the entire sector has been under pressure, he said. “It is just a hideous environment for anyone,” Ryan said.
Goldman Sachs was down 5.8 percent, and Bank of America was down 13.9 percent. J.P. Morgan Chase fell 17.9 percent amid media reports that it was planning to lay off about 10 percent, or 3,000, of its investment banking business staff.
Light sweet crude was down 7.5 percent to $49.62 a barrel. Oil prices have been depressed by expectations that a global recession will further dampen fuel demand.
Crude is already far from its peak of $147 a barrel this summer and could reach $45 a barrel by the end of the year, analysts said. It has not closed below $50 a barrel since 2005.
Traders are ignoring triggers that would have traditionally sent prices up, including Saudi-owned supertanker seized by pirates off Somalia, which could disrupt shipping routes, said Addison A. Armstrong, director of market research at Connecticut-based Tradition Energy. “There are bullish factors out there but the market is just ignoring them because they are more focused on the collapse of the financial system,” he said.
That has weighed on energy stocks. Exxon Mobil and Chevron were down 4.9 percent and 8.9 percent, respectively, while ConocoPhillips fell 9.8 percent.
Meanwhile, investors have also been digesting more poor economic data. The number of workers filing new claims for jobless benefits surged to a seasonally adjusted 542,000 last week, according to Labor Department data. That is the highest level in 16 years and surpassed analysts’ expectations.
The leap in claims over the past few weeks has been deeply alarming but it is consistent, unfortunately, with the sudden collapse in just about all the coincident data on economic activity,” Ian Shepherdson, chief U.S. economist for High Frequency Economics, said in a research note. “As far as we can tell, companies have thrown in the towel since September, and are now hunkering down for a deep and extended recession.”
Overseas stocks were also down. London’s FTSE and the Dax in Germany were both down more than 3 percent, while the Nikkei in Japan plummeted nearly 7 percent.
Source:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/20/AR2008112001414_2.html?hpid=topnews
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