By Jennifer Yousfi
Panicked international investors fled the markets as a steep sell-off circled the globe today (Friday), but a late-afternoon rally helped the U.S. market pare the bulk of declines.
“A lot of institutions are deciding to come back into the market,” Michael Nasto, the senior trader at U.S. Global Investors Inc., told Bloomberg News. “We've been beaten down so much. Some people feel this is the bottom.”
After plunging below 8,000 earlier in the day, the Dow Jones Industrial Average reversed course. At the New York close, the blue-chip Dow posted a reduced loss of 128.00 points (-1.49%), to close at 8,451.19. The tech-laden Nasdaq Composite Index eked out a 4.39- point gain (0.27%), to close at 1,649.51. And the broader Standard & Poor’s 500 Index lost 10.70 points (-1.18%), to settle at 899.22.
While the loss was smaller than earlier feared, the Dow – seen by many as a key indicator of U.S. economic health – is down more than 18% for the week. It’s the biggest weekly decline in history for the stock market bellwether – and for the broader-based S&P 500, which was also down 18% for the week.
"I'm more convinced now than ever that this market has made a bottom. The capitulation came when we breached 8,000," Peter Cardillo, chief market economist at Avalon Partners, told MarketWatch.com.
"It doesn't mean we can't go back and revisit that level," Cardillo added.
In overseas markets earlier today, Japan’s Nikkei Index dived 9.6%, with an 881.06-point decline, to close at 8,276.43. Hong Kong’s blue-chip Hang Seng Index plunged 7.2%, with a decrease of 1,146.37 points, to close at a new three-year low of 14,796.90.
Emerging markets fared equally poor, and in many cases, much worse. Stock exchanges were closed today in Iceland, Indonesia and Russia, while steep sell-offs in Thailand, Austria, Romania and Brazil halted trading, MarketWatch reported.
In India, the Sensex Index fell 7%. China’s Shanghai Composite ended 3.6% lower.
Worries about the world’s economic health sent crude oil prices sharply lower as oil futures hit a new 13-month low. Crude oil for November delivery dropped $8.89 to close at $77.70 per barrel.
"People have to remember oil used to trade for the longest time at $35 to $40 a barrel," James Cordier, founder of OptionSellers.com, referring to prices not seen since 2004, told CNNMoney.com. "The consumption that we saw back then, we could see it again."
"Factories are closing, jets are on the ground, a lot of the expansions in China and India are probably going to be curtailed," said Cordier.
Credit Crisis Cleanup
In a speech Friday morning, U.S. President George W. Bush tried to reassure Americans that the federal government was using every tool possible halt the steep market declines.
“We are a prosperous nation with immense resources and a wide range of tools at our disposal,” Bush said. “We're using these tools aggressively.”
More than 350 banks and financial institutions will have to pay 91.375 cents on the dollar for credit-default swaps related to bankrupt Lehman Bros. Holdings Inc. (OTC: LEHMQ), Bloomberg reported.
The auction could result in $270 billion in payments, according to Andrea Cicione, a strategist for BNP Paribas SA (OTC ADR: BNPQY).
While the figure is higher than anticipated, “I don't think it buries anybody,” said Brian Yelvington, a strategist at CreditSights Inc., a bond research firm in New York.
Because the value of Lehman bonds had been declining for some time prior to the investment bank’s collapse, most financial firms will have already taken necessary write-downs and set aside the collateral to honor obligations tied to Lehman debt.
Due in part to the lack of surprises concerning Lehman, the financial sector sparked a late-afternoon rally to end up 0.28% for the day. JPMorgan Chase & Co. (JPM) gained $4.96 a share, an increase of 13%, to close at $41.64. Bank of America Corp. (BAC) shares rose 6%, or $1.24 each, to close at $20.87.
There was no such good news for battered Morgan Stanley (MS), as investors continued to worry about surprises that might still be lurking in the former investment bank’s books. Shares plunged more than 22%, with a decline of $2.77, to close at $9.68 for the day Friday. The firm’s market capitalization is down to just $10.74 billion.
Goldman Sachs Group Inc. (GS) fared a bit better, with a 12% decline of $12.55 per share. It’s shares closed Friday at $88.80.
Even so, Goldman’s shares are down 65% from their 52-week high of $250.70.
Moody’s Investor Services (MCO) put both Morgan and Goldman on alert that their credit ratings were being reviewed on concerns that the investment bank model is no longer viable, Reuters reported.
“The fear is mainly due to the fact that this happened once before (with Lehman Brothers) and could happen again – a bank went down, and others could too,” Marino Marin, managing director and banker at Gruppo, Levey & Co., told Reuters.
“This overall environment isn't helping. The government has announced plans but hasn't actually done anything,” Marin said.
News and Related Story Links:
President Bush's statement on the economy
Emerging markets tumble amid global stock rout
Stocks slide sharply amid shattered confidence
Oil prices hit 1-year low
Lehman Credit-Swap Auction Sets Payout of 91.38 Cents