US Markets Plunge, Gold Experiences Largest 1-Day Rally And Morgan Stanley May Merge With Wachovia

Well here we are again, another horrible day in the financial markets. Stocks plunged again, with the Dow giving up 449.36 points to close at 10,609.66.  The Nasdaq fell 109.05 points to 2,098.85, and the S&P 500 gave up 57.20 points to close at 1,156.39. The market did not seem comforted by the government takeover of AIG (AIG). The Federal Reserve is giving AIG an $85 billion loan, and it will receive almost an 80 percent stake in the company.  The theme of “Too Big to Fail” remains prevalent in the market. If the government had not stepped in, the market most likely would have plunged farther than it had on Monday.

The two independent Wall Street investment banks left standing — Goldman Sachs Group Inc. (GS) and Morgan Stanley (MS) remain under close watch, along with Washington Mutual Inc. (WM), the country’s largest thrift bank. Morgan Stanley revealed its quarterly earnings early Tuesday evening, and posted a better-than-expected 7 percent decline in fiscal third-quarter profit. Today, the investment bank held preliminary merger talks with Wachovia (WB); after their decline in the last few days, their market value is only slightly above Wachovia’s, so the combination would most likely be a merger of equals.  Looking closer at the two remaining independent investment banks, Goldman Sachs fell 14 percent to close at $114.50, and touching below $100 during the trading day.  Meanwhile, Morgan Stanley fell 24 percent to close at $21.75.  Who will be the last to stand? We should see within a few weeks.

Gold closed at $850.50 in regular trading, the largerst ever one-day gain in dollar terms.  We saw crude oil continue its trend downward closing at $97.16 a barrel.  This can mainly be attributed to the disaster in the markets in the recent days and the lessening demand for gold in our declining economy. In other commodity news, silver prices rose $1.158 to $11.675 and natural gas rose to $7.91, which is its highest price in over two weeks.

Economic data that was released today did not help the market either; the Commerce Department reported that home construction fell by 6.2% in August, the slowest rate since January 1991. The uncertainty in the financial markets, weak demand for houses, increasing amount of mortgage defaults, and decreasing home prices are just a few factors to this volatile, and scary market.

Disclosure: The author that the mutual fund is a part of is long Goldman Sachs.

Posted in Categories: Commodities, Contributor, External Research, Financial, Stocks, USA.

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