Monday’s Market Recap: We Haven’t Bottomed Out Yet

The markets crumbled today (Monday) when investors panicked after the House rejected the government’s proposed financial bailout plan. 228 representatives rejected the proposal while only 205 voted in favor. The Dow Jones Industrial Average (^DJI) plunged 777.68 points or 6.98%, the single largest one day point drop since 1987, to close at 10365.45. This 777.68 point drop eclipses the previous drop of 684.81 which occurred the first trading day after the 9/11 terrorist attacks. A horrible performance from the Information Technology sector pushed the Nasdaq (^IXIC) down, dropping 9.14% or 199.61 points in today’s session, to close at 1,983.73. The S&P500 (^GSPC) performed similarly and fell 106.59 points or 8.79% to close at 106.59. Many investors had thought we had already experienced the bottoming out of the market, but today’s huge decline obviously proved these assumptions false. We will have to wait and see what happens with the government bailout and it is clear that revisions must be made to the original plan to get approval by the House. Treasury Secretary Henry Paulson vows that the administration will continue to work for Congress’ approval on the rescue plan.

Crude oil fell $11.45 or 10.71% today on investor fears of a possible slowdown in US energy demand and the rejection of the $700 billion rescue plan by the House. Crude settled at $95.44 per barrel, once again falling below the “magical” $100 mark. Gold rose $23.30 or 2.64% to a price of $906.20 per ounce. The 10 year Treasury note fell 510 basis points to a yield of 3.6320%. The Dollar remained relatively strong against the Euro, trading at 0.6923 vs. the Euro. Against the Yen, the Dollar fell off a bit, currently trading at 104.06 vs. the Yen.

The Federal Reserve and foreign central banks agreed to once again pump billions of dollars into the global financial system today to try and unlock tight lending that is hindering the US economy. The Fed plans to significantly expand the amount of cash available to financial institutions in an attempt to relieve the “continued strain” in the demand for short term funding. The Fed will increase the amount of 84-day cash loans available to U.S. banks from $25 billion to $75 billion and starting on October 6, banks can bid on a proportion of the loans at an auction. The total amount of cash loans available to banks, both 84-day and 28-day, will double from $150 billion to $300 billion.

The Fed made an extra $330 billion, up from $290 billion, available to other central banks through currency “swap” arrangements, where dollars are traded for their currencies. Governments across Europe have announced bank bailouts from Germany to Iceland. European money markets remained frozen due to continued fears within the US financial crisis and banks refusing to lend to each other. The financial crisis has reached global heights and its effects will continue into the unforeseeable future.

Mitsubishi UFJ Financial group (MTU) announced that it’s investing $9 billion in Morgan Stanley (MS) for a 21% stake in the company. Mitsubishi will purchase $3 billion in common stock, and $6 million in preferred stock.

Disclosure: None

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