Wednesday, September 17, 2008 9:32:51 PM
Stocks Plummet Again As Fed's Bailout Of AIG Fails To Soothe Investors' Nerves
BY JONAH KERI
Posted 9/17/2008
Stocks plunged for the second time in three days, as a government bailout of insurance giant AIG (AIG) highlighted a nervous Wednesday on Wall Street.
The major indexes gapped down hard at the open — the third straight day of poor openings. The market started perking up with about two hours to go in the session, as surging oil prices fueled a rally in energy stocks.
But the broad market quickly turned tail, plummeting into the close and ending at session lows.
The Nasdaq tumbled 4.9% for the day. The S&P 500 swooned 4.7%, the NYSE composite 4.5%, the Dow industrials 4.1%.
Volume eased compared to Tuesday's levels. On both days, trading neared one of its highest totals of the year for the market.
The latest financial-market bombshell came late Tuesday, as the Federal Reserve said it would grant AIG a two-year, $85 billion loan in exchange for a nearly 80% stake in the company.
The Fed declined to bail out Lehman Bros. (LEH) when the investment banking giant teetered on its last legs over the weekend, forcing the firm to file for bankruptcy.
British bank Barclays then said late Tuesday it would buy Lehman's North American investment banking and capital markets businesses for $250 million in cash, and Lehman's New York headquarters and two New Jersey data centers for $1.5 billion.
But the Fed saw AIG as too important to let collapse. AIG had tried to raise private capital, after losing billions from insuring against bond defaults. Observers fretted that AIG's ties to multiple financial services industries could deliver a big blow to the global financial sector.
AIG's shares nosedived 45% in gigantic volume Wednesday, closing just above 2 a share. The stock closed at 17.55 just a week ago. It started the year above 58.
Wall Street's remaining investment banks have come under increasing scrutiny. Both Goldman Sachs (GS) and Morgan Stanley (MS) reported lower quarterly earnings Tuesday that still beat depressed estimates. But both stocks swooned on Wednesday: Goldman slid 14%, Morgan 26%.
More broadly, the Fed's helping hand for AIG, rumors of possible government help for Washington Mutual, (WM) the nation's largest thrift, and other financial-sector happenings did nothing to soothe worldwide liquidity fears.
A key concern Wednesday was the market for so-called credit default swaps and a spike in inter-bank borrowing costs.
The bailout talk has also done nothing to help the stock market.
In fact, with two massive losses in the past three sessions, the S&P 500 was already sitting on its worst weekly loss in more than six years — with two days still left in the week.
Wednesday's damage spread to all corners of the market. NYSE losers topped winners by a margin of nearly 14-to-1. That was down a bit from Monday's level of 19-to-1, but still near historic benchmarks.
Techs shared in the day's carnage. Big caps such as Research In Motion, (RIMM) Google (GOOG) and Apple (AAPL) all took much bigger losses than those suffered by the broad market.
Energy stocks appeared primed for an up day, as the price of crude oil surged $6.01 to settle at $97.16 a barrel. But after leading a brief afternoon rebound try, bellwether energy stocks Exxon Mobil (XOM) and Chevron (CVX) reversed, turning big gains into losses by the close.
Higher fuel prices hurt airlines and other transportation stocks too. The Dow transports fizzled 3.5%.
Days like Monday and Wednesday underscore why IBD stresses cash as the best option during a correction or bear market. At least three out of every four growth stocks will follow the market's trend lower under such conditions.
Don't try to fight the overwhelming market trend. Cut losses, cash in your winners where possible and move into cash. It's much easier to observe stocks' struggles from the sidelines than it is to get crushed by the sellers' all-out blitz.
Investors rushed to safety in bonds. The yield on the benchmark 10-year note dropped to 3.41% from 3.44% late Tuesday.
BY JONAH KERI
Posted 9/17/2008
Stocks plunged for the second time in three days, as a government bailout of insurance giant AIG (AIG) highlighted a nervous Wednesday on Wall Street.
The major indexes gapped down hard at the open — the third straight day of poor openings. The market started perking up with about two hours to go in the session, as surging oil prices fueled a rally in energy stocks.
But the broad market quickly turned tail, plummeting into the close and ending at session lows.
The Nasdaq tumbled 4.9% for the day. The S&P 500 swooned 4.7%, the NYSE composite 4.5%, the Dow industrials 4.1%.
Volume eased compared to Tuesday's levels. On both days, trading neared one of its highest totals of the year for the market.
The latest financial-market bombshell came late Tuesday, as the Federal Reserve said it would grant AIG a two-year, $85 billion loan in exchange for a nearly 80% stake in the company.
The Fed declined to bail out Lehman Bros. (LEH) when the investment banking giant teetered on its last legs over the weekend, forcing the firm to file for bankruptcy.
British bank Barclays then said late Tuesday it would buy Lehman's North American investment banking and capital markets businesses for $250 million in cash, and Lehman's New York headquarters and two New Jersey data centers for $1.5 billion.
But the Fed saw AIG as too important to let collapse. AIG had tried to raise private capital, after losing billions from insuring against bond defaults. Observers fretted that AIG's ties to multiple financial services industries could deliver a big blow to the global financial sector.
AIG's shares nosedived 45% in gigantic volume Wednesday, closing just above 2 a share. The stock closed at 17.55 just a week ago. It started the year above 58.
Wall Street's remaining investment banks have come under increasing scrutiny. Both Goldman Sachs (GS) and Morgan Stanley (MS) reported lower quarterly earnings Tuesday that still beat depressed estimates. But both stocks swooned on Wednesday: Goldman slid 14%, Morgan 26%.
More broadly, the Fed's helping hand for AIG, rumors of possible government help for Washington Mutual, (WM) the nation's largest thrift, and other financial-sector happenings did nothing to soothe worldwide liquidity fears.
A key concern Wednesday was the market for so-called credit default swaps and a spike in inter-bank borrowing costs.
The bailout talk has also done nothing to help the stock market.
In fact, with two massive losses in the past three sessions, the S&P 500 was already sitting on its worst weekly loss in more than six years — with two days still left in the week.
Wednesday's damage spread to all corners of the market. NYSE losers topped winners by a margin of nearly 14-to-1. That was down a bit from Monday's level of 19-to-1, but still near historic benchmarks.
Techs shared in the day's carnage. Big caps such as Research In Motion, (RIMM) Google (GOOG) and Apple (AAPL) all took much bigger losses than those suffered by the broad market.
Energy stocks appeared primed for an up day, as the price of crude oil surged $6.01 to settle at $97.16 a barrel. But after leading a brief afternoon rebound try, bellwether energy stocks Exxon Mobil (XOM) and Chevron (CVX) reversed, turning big gains into losses by the close.
Higher fuel prices hurt airlines and other transportation stocks too. The Dow transports fizzled 3.5%.
Days like Monday and Wednesday underscore why IBD stresses cash as the best option during a correction or bear market. At least three out of every four growth stocks will follow the market's trend lower under such conditions.
Don't try to fight the overwhelming market trend. Cut losses, cash in your winners where possible and move into cash. It's much easier to observe stocks' struggles from the sidelines than it is to get crushed by the sellers' all-out blitz.
Investors rushed to safety in bonds. The yield on the benchmark 10-year note dropped to 3.41% from 3.44% late Tuesday.
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