Dow gains 485 points, but does anyone care?

By Pete Southern in LiveWire Economics Blog | October 1, 2008 8:06 |

The Dow Jones Industrial average had its third highest one day total points gain ever Tuesday (September 30), and it could not have happened in a quieter fashion. Many analysts had anticipated a rebound Tuesday in lieu of any detrimental news on the Street. Monday’s 777 point drop in the Dow was the index’s largest point drop ever and third deepest percentage fall in history – So much for lucky number 7.

It is amazing to see how desensitized the market is after weeks of multi-hundred point moves in the Dow and the daily grind of down news and hopeful enthusiasm. There is little debate that Thursday’s market move was an emotional one. Despite the early week’s failure of the initial $700 billion credit market bailout plan, most analysts and investors are betting a plan of some type has to go through soon. Democrats and Republicans alike have been consistent in their agreement that an intervention is necessary to prevent a long and deep recession.

Many lawmakers who helped defeat the initial bailout bill have commented this week on their reasoning for voting against the plan. One overriding sentiment is concern about taxpayer dollars going toward parachute plans for CEOs and other corporate executives at the credit firms. The intention of the bailout is to preserve assets held by the bankers and creditors. However, many Americans and representatives fear the plan might not be able to prevent some of the $700 billion from going straight into the pockets of company leaders.

Late Tuesday, word came that the Senate was attempting to take leadership in the bailout. Senate leaders have scheduled a vote on the bailout plan for Wednesday. There were some modifications made to the original $700 billion plan intended to make it more appealing for those concerned. The biggest addition was a tax cut plan that had been rejected by the House. Additionally, the revised plan would increase FDIC insurance protection form $100,000 to $250,000 for depositor’s money. These moves are intended to assist struggling Americans and protect investors and savers while preserving endangered assets in the credit markets.

The Standard & Poor’s/Case-Shiller 20 city housing index showed its largest annual percentage drop ever in July. The index which covers home prices in twenty of the largest metro markets across the US showed a 16 per cent fall in home values from July 2007, to July 2008. July also marked the fourth consecutive month that the index did not have one city show home price appreciation. The 20 city index began in 2000. The 10-city index plunged even more with a price drop of 17.5 per cent. This was the largest drop for that index in its 21 year history.

The housing news was not all bad as a consistent slowing of price declines seems to be building. Monthly price depreciation was just 2.2 per cent from May to July. This was less than half of the cumulative price declines experienced between February and April. This slowing decline is viewed by many analysts as a positive by many, but some were quick to point out that no guarantees of a market bottom exit.

Market Recap

Stocks crashed hard Monday following a rejection in the House of the $700 billion bailout proposal. The Dow had its largest single day drop ever at 777 points. The NASDAQ gave up 199, while the S&P lost 100 points. The Dow gained back 485 points Tuesday thanks largely to bargain hunting. Credit concerns still persist as bailout talks continue. The NASDAQ and S&P were up 98 and 59 points. Home prices showed a 16 per cent annual drop in July.

Neil Kokemuller
Tuesday, September 30, 2008
10:36 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.

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