Friday’s Market Recap: Congress Approves Bailout Bill But Stocks Still Down

The markets declined today fueled by economic concerns and disappointing unemployment and payroll cut data despite passage of the highly debated bailout plan. The Dow Jones Industrial Average (^DJI) fell 157.47 points or 1.50% to settle at 10,325.38. On the week the Dow tumbled nearly 815 points or 7.31%. The Nasdaq (^IXIC) fell 1.48% or 29.33 points in today’s session to close up at 1,947.39. On the Week the Nasdaq Composite fell nearly 200 points, or 9.31% fueled by disappointing performances from technology which took a beating on the week. The S&P500 (^GSPC) closed today’s session at 1,099.23, dropping off 1.35% or 15.05 points. For the Week the S&P dropped nearly 110 points, or 9.10%. The 10 year Treasury note dropped slightly to a yield of 3.6440%.

The Dollar had a strong day against the Euro, and is currently trading at 0.7262 vs. the Euro. If there is any bright spot in our current economic and financial crisis, I would have to say the Dollar’s relative strength, which will definitely lend a helping hand to the recovery of our economy. Against the Yen today, the Dollar slide slightly and is currently trading at 105.32 vs. the Yen. Crude oil fell slightly again today, dropping to $93.05 per barrel, falling 0.98% or $0.92 per barrel. Gold also fell today, shedding $11.30 or 1.35% to settle at $827.70 per ounce. It will be interesting to see how crude oil and gold continue to trade as more certainty and information about the government’s intervention and plan to fix the current crisis is factored into investor’s actions.

Congress approved the $700 billion government bailout plan today, and then passed on the bill to President Bush, who quickly signed the bill. President Bush stated, “We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country.” President Bush also added that our economy will continue to face many serious challenges. The vote in the House was 263-171, ending two weeks of mayhem in Congress and on Wall Street over the proposed bailout. The bill gives the Treasury Department $700 billion to purchase bad mortgage securities that are weighing down the balance sheets of the financial firms that own them. Treasury Secretary Henry Paulson promised to start using his new authority quickly, and Federal Reserve Chairman Ben Bernanke added that the central bank would work closely with the administration during this “Wall Street Repair”.

The News of the passing of the bailout plan was overshadowed by the largest job cuts since 2003. The Labor Department announced today that payrolls were slashed by 159,000 in the month of September, more than double the jobs cut in the month of August. This is the ninth straight month of job losses. 760,000 jobs have been cut this year so far. The Labor Department also reported that the unemployment rate was 6.1%, up from 4.7% a year ago. Over the past year the number of unemployed has increased from 2.2 million to 9.5 million. There were employment gains in government, education, and healthcare jobs, but an overwhelming cut in the manufacturing, auto-maker, home builder, retailer, and financial sectors completely outweighed these gains. Analysts believe that even with the passage of the $700 bailout plan, the weakening economy and the job market will probably continue to get worse, and the unemployment rate may hit 7-7.5% by the end of 2009.

On a slightly better note, The Institute for Supply Management said its non-manufacturing index came in at 50.2, above the level of 50, which signals expansion. This reading is attributed to a small increase in new orders. The service sector represents nearly 80 % of US economic activity, and includes businesses like airlines, hotels, restaurants, and banks.

Wells Fargo (WFC) signed a $15.1 billion agreement to buy Wachovia (WB) while Citigroup (C) and federal regulators insisted that Citi’s takeover of Wachovia move forward. This surprise move to be taken over by Wells Fargo in an all stock deal, with no government assistance, completely caught regulators off guard and shook up the financial sector a bit today. If the deal goes through, Wachovia shareholders will receive 0.1991 shares of Wells Fargo for every share of Wachovia they own. This values Wachovia at about $7 per share. Wachovia’s board approved Wells Fargo’s offer, but the deal is still subject to Wachovia shareholder and other regulatory approval.

The Citigroup deal, announced on Monday, would have been done with the help of the FDIC. The FDIC is standing behind the agreement it made with Citigroup. Citi demanded that the deal between Wachovia and Wells Fargo be called off, and claimed its deal with Wachovia prevented Wachovia from negotiating with or entering into any transaction with any firm but Citi. Citi is threatening to sue, and this newly created fight for Wachovia comes in a very volatile time for banks and financial firms as they continue to struggle with the current credit crisis and a battler for control of Wachovia could really stir some things up.

American International Group [AIG: 3.86, -0.14 (-3.50%)] announced today that it will focus on its core insurance business and sell off the rest of its businesses in order to repay up to $85 billion borrowed from the government. AIG will keep its US property, casualty, foreign, and general insurance businesses, as well as retain an ownership interest in its foreign life operations. CEO Edward Libby stated, “Literally, everything else that doesn’t fit under that definition we are considering for sale.” Libby added that there are some buyers lined up and that they hope to sell off these units as quickly as possible, so we will have to continue to watch this situation and see who steps up to buy these other businesses from AIG.

Disclosure: None

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