Wall Street appeared to give up any illusion of optimism Monday, with the Dow dropping over 500 points, to below 11,000, its biggest one-day point drop since the Monday following 9/11. Fed by what seems to be an endless stream of bad financial news, the bears took a swipe at just about everything (Coca Cola was the Dow’s only positive, hanging on to a .5% gain). Markets in Japan, South Korea, and Hong Kong sank in early trading, while gloomy pundits argued about which financial institution would remain afloat.
Although the financial markets have been a weight on Wall Street for at least the past year (the DJIA peaked at over 14,000 in October of 2007), Monday’s news that the government would not rescue Lehman Brothers, the 130-year-old global financial giant, was the primary burden. But there was plenty of heavy news to pile on.
The Federal Reserve reported Monday that U.S. industrial output plunged 1.1% in August, nearly 4 times more than economists had predicted, led by a nearly 12% drop in the production of automobiles and parts. And then Merrill Lynch agreed to be taken over by Bank of America, leaving just two major Wall Street firms standing (Morgan Stanley and Goldman Sachs). All this took place simultaneously as the leading international insurance company, AIG, desperately looked for funding to avoid bankruptcy. (If AIG did go under, it would be the first Dow stock in history to declare bankruptcy.)
And nobody seems to think that the worst is over. Washington Mutual, the nation’s largest savings and loan, has been hit harder than most by the continuing real estate crisis, and some fear that it’s too late to save. WaMu shares have plunged to their lowest levels in over 16 years. The loss of tens of thousands of Wall Street jobs pales in comparison to the millions of jobs that some see at risk from a major recession.
Throw in concerns about government deficits, fuel prices, rising inflation coupled with rising unemployment (something not usually seen, but happening now), and there’s not much for analysts to be positive about. Even the most optimistic are reduced to pointing to charts and talking about support levels.
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