NEW YORK, Dec. 1, 2008
Wall Street Slammed Amid Consumer Worries
Dow Plunges 680 Points On Tepid Holiday Shopping Data, Confirmation That U.S. Is In Recession
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Traders work on the floor of the New York Stock Exchange, Monday, Dec. 1, 2008. (AP Photo/Richard Drew)
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Play CBS Video Video An Obama Economy Bob Schieffer talks with a panel of political authors about bank bailouts and the economic future under a Barack Obama administration.
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Video U.S. Officially In Recession The U.S. economy has been officially determined to be in a recession. Wall Street is clearly worried with the Dow plunging nearly 680 points Monday. Anthony Mason reports.
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Timeline Financial Meltdown Track major events that lead to one of the most tumultuous times in Wall Street's history.
The market spent the day absorbing a litany of bad news that convinced investors that the optimism that fed a 1,276-point gain in the Dow over five sessions was premature. Stocks first slid on initial reports that the first weekend of the holiday shopping season, while better than some retailers and analysts feared, saw only modest gains. That had Wall Street worried that the rest of the season would be disastrous, a troubling thought not only for retailers but for an economy that is dependent on consumer spending for its growth.
The markets haven't been this volatile in almost 80 years, reports CBS News correspondent Anthony Mason. For the past 50 days, the S&P 500 has whipsawed up and down an average of nearly 4 percent every day - that hasn't happened since the late 1920's.
"It's just one of these markets that's just floating back and forth and we're back on the down side," Alan Valdes of Hilliard Lyons told Mason.
According to figures released by RCT ShopperTrak, a research firm that tracks total retail sales at more than 50,000 outlets, sales over Friday and Saturday rose just 1.9 percent.
Meanwhile, downbeat economic reports on the manufacturing sector and construction spending only added to investors' concerns. Speeches from Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson also did little to assuage investors about the downturn.
The day's news reminded investors, who last week were buying on a burst of optimism, that the economy is still in serious trouble. Then, at midday, Wall Street got confirmation of what everyone has suspected for months, that the nation is indeed in a recession. The National Bureau of Economic Research, considered the arbiter of when the economy is in recession or expanding, said the U.S. recession had begun a year ago, in December 2007.
That assessment made the retail sales figures all the more unnerving.
"Unfortunately, two-thirds of the American economy is based on the spending of the American consumer," said Mike Stanfield, chief executive of VSR Financial Services. "When the consumer pulls back, it's very hard for the economy to gain much traction."
Investors had been hopeful that last week's rally - when the major indexes shot up by double digit percentages - was a sign that some stability had returned to a market badly shaken by months of discouraging economic data. But analysts expect economic concerns to weigh on the market for some time to come.
"Everyone knows the recession is on us, the question is now will it be short and shallow or long and severe," Stanfield said.
Chuck Widger, chief executive of investment management firm Brinker Capital, expects the volatility to continue until investors have better visibility on the future.
"Investors are looking for better data on the economy," he said. "We've got baked in pretty nasty assumptions for the economy this quarter. The markets are looking ahead to the first quarter for data that will confirm or deny the bad news."
Although Monday's plunge was notable because it cut short a five-day rally - the first such winning streak for the Dow and the Standard & Poor's 500 index since July 2007 - it also fit what has become a pattern on Wall Street. The market has made a number of big, optimistic moves higher, including triple-digit gains in the Dow, only to quickly give them back as another batch of bad news arrives.
According to preliminary calculations, the Dow Jones industrial average fell 679.95, or 7.70 percent, to 8,149.09. The S&P 500 index dropped 80.03, or 8.93 percent, to 816.21, while the Nasdaq composite index fell 137.50, or 8.95 percent, to 1,398.07.
Only 218 stocks were in positive territory on the New York Stock Exchange with 2,693 declining. Volume came to 1.62 billion shares.
The Russell 2000 index of smaller companies fell 56.07, or 11.85 percent, to 417.07.
Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 2.76 percent from 2.92 percent Friday. The yield on the three-month T-bill, considered one of the safest investments and an indicator of investor sentiment, slipped to 0.02 percent from 0.05 percent Friday. The lower the yield, the more anxious investors tend to be.
The market received no relief after a pair of speeches from Paulson and Bernanke about the economy.
Paulson said the administration is looking for more ways to tap a $700 billion financial rescue program and will consult with Congress and the incoming Obama administration. The program has distributed $150 billion out of the $250 billion earmarked to buy stock in banks as a way to boost their resources so they can lend more.
He said the administration is looking at other ways to utilize the rescue package, including alternatives for providing capital to financial institutions.
Meanwhile, Bernanke said in another speech Monday that further interest rate cuts are "certainly feasible," but he warned there are limits to how much such action would revive the economy. The central bank's key interest rate now stands at 1 percent, a level seen only once before in the last half-century.
Many economists predict policymakers will drop the rate again at their next meeting on Dec. 15-16. And, there have certainly been enough weak economic news to compel the Fed to make another cut.
There was no shortage of disappointing economic news on Monday. The Institute for Supply Management, a trade group of purchasing executives, said its index of manufacturing activity fell to a 26-year low in November. Meanwhile, the Commerce Department said construction spending fell by a larger-than-expected amount in October.
Stanfield also said investors have lost some confidence in recent moves by the government to bolster the financial system. "The financials are still lagging, which in my opinion shows a lack of confidence in (Treasury Secretary) Paulson and the undertaking of the Fed and the Treasury," he said.
Analysts say investors have been frustrated by the government's change in strategy as it implements its $700 billion financial bailout program; the Treasury originally said it would buy soured mortgage debt from banks, then decided to buy stock in the banks. Last week, with the rescue of Citigroup Inc., the government again said it was buying the bank's failed debt.
The government injected a fresh $20 billion into the banking giant and said it would guarantee up to $306 billion of the bank's risky assets. Banking stocks were among the biggest sectors pulling the overall market down on Monday.
Citigroup tumbled $1.84, or 22.2 percent, to $6.45. Morgan Stanley shares dropped $3.40, or 23.1 percent, to $11.35. Goldman Sachs Group Inc. fell $13.23, or 16.7 percent, to $65.76.
Retailers were among the day's poorest performers. Wal-Mart Stores Inc. fell $2.87, or 5.1 percent, to $53.01, while JCPenney Co. tumbled $2.44, or 12.8 percent, to $16.55.
One of the silver linings on the dark cloud of recession is the rapid fall in the cost of energy, reports CBS Radio News' Dan Raviv. Demand for fuel is down with a slower economy and a further slowdown expected.
Oil now costs one third of what it was this past July. After OPEC failed to agree on production cuts, the price of oil fell by almost 10 percent, Raviv reports. Light, sweet crude dropped $5.15 to settle at $49.28 a barrel on the New York Mercantile Exchange.
The Organization of the Petroleum Exporting Countries, which accounts for about 40 percent of global supply, reduced output quotas in October by 1.5 million barrels a day.
The dollar fell against other major currencies. Gold prices also fell.
Overseas, Japan's Nikkei stock average fell 1.35 percent. At the close, Britain's FTSE 100 was down 5.19 percent, Germany's DAX index was down 5.88 percent, and France's CAC-40 was down 5.59 percent.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Best-selling author Mitch Albom on his first nonfiction work since "Tuesdays with Morrie."
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See all 148 CommentsI say: don''''t worry anything about! - this is undecover game with target to make money loundry for small VIP group.
Leading american companies can''''t fall.They are enough prospective and strong - just all together must start work traditionally and calm.
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Posted by refbatch
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Uh, what color is the sky in YOUR world?
In the early 70s, Detroit automakers decided en masse to close factories and ship labor overseas to slave labor countries. The massive layoffs first killed Detroit, then rippled through the Appalachian steel, and coal industries, which then spread to transportation, even to the entertainment industries.
All this while the neocons were lying that the economy was growing, stable and strong.
Reagan came along preaching his "trickle down" BS, which was a massive redistribution of wealth to the already wealthy, at the expense of what was left of the middle class.
The banks switched to predatory lending practices because there was no longer a significant market of potential borrowers who could sustain 30-year mortgages.
The current problems are the logical outcome of trickle down, a depleted middle class, vanishing sales potential, sharply diminished consumption, and the already proven false assumption, held since WW2, that the US economy thrives on war.
Any solution that does not reconstitute the middle class is doomed to failure. Without restoring the industrial base, creating permanent and well paying jobs, the country will soon collapse into anarchy, when large numbers of people can no longer afford food and shelter.
But on these topics we see idiots who think this just recently happened because of "minorities".
Suckers.
- I don''t think the US will split up in the ''depression.'' I think we will have a ''reorganization'' of the class system. Would it do any of us any good to split our country in half? I think not. Actually, what we need to do right now is look out for our families, friends and neighbors as we should always be doing. It shouldn''t take a 9-11 or a depression for Americans to bond together. If the corporate fat cat CEOs and their thugs would bother to earn an honest living and also allow their legal workers to do the same, we can get through this just fine, I think, or at least I hope.
I say: don''t worry anything about! - this is undecover game with target to make money loundry for small VIP group.
Leading american companies can''t fall.They are enough prospective and strong - just all together must start work traditionally and calm.
It''s worried that the dead ''global-financial-system'' cannot be revived because there''s not enough money in the world to ''cash-out'' over a Quadrillion in worthless Derivative swaps.
There is no global-debt-bubble to swallow up the ''global-housing-derivatives-bubble''.
That''s the plain truth they wish to ignore...THERE IS NO NEW DERIVATIVES BUBBLE BIG ENOUGHT TO SWALLOW THE GLOBAL HOUSING BUBBLE!!!!!!!!
THE GLOBAL FINANCIAL SYSTEM IS DEAD, DECEASED, OVER, KAPUT, GONE, LIFELESS, WORTHLESS, ASHES, BLOWN-OUT, FATALITY, CASUALTY, OBLITERATED.......DEAD!!!!!!
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Posted by Rowdydfw
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There happens to be more to good judgement than IQ, like Common sense. Speaking of IQ whats yours? 75
Why didn''''t your freaking GENIUS step in in 2005? IS HE JUST IGNORANT? Or just corrupt because he was lapping up Fannie/Freddie money like a pup at a milk bowl?
Posted by Rowdydfw at 07:22 PM : Dec 01, 2008
Rowdy....I would advise you to recheck your facts, before you end up making a fool out of yourself...as usual.
I suggest that you actually take the time and review what Bush turned his back on in 2005. Bush was warned at least by 2005 that this financial collapse could happen. But he chose to listen to his banking buddies, and turned his back on any regulations that could have helped to prevent this fiasco! And history will prove this out!
Most of the time...I can ignore your rantings, but your claims are really outrageous on this one. And guess what? I don''t care about any retorts from you. History will prove this out.
Hope you can get a real life pretty soon. I check the news one to two times a day when I have a minute, and you seem to always be on this message board.
The problem is where are we getting this money?
A doom_nothing Congress and A doom_nothing senate and a Doom_president Elect. heh heh heh heh
Look around and find somebody to blame.
Why didn''''t your freaking GENIUS step in in 2005? IS HE JUST IGNORANT? Or just corrupt because he was lapping up Fannie/Freddie money like a pup at a milk bowl?
Posted by Rowdydfw
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OHHHHHHHHHHHHHHHH thats right I forgot my American Government class, A Lone Senator from Illinois has the power to pass legislation to control that stuff all by himself nobody can override him and no one(bushie) can veto him.
And I stand behind my belief even more strongly that "s.t.u.p.i.d people should not breed!"
Posted by Demdump
Perhaps you should do a little reading. It might help you on that blame game you are advancing.
http://www.msnbc.msn.com/id/28001417/
First he lied to us 935 times to get us into war for his buddies at Halliburton, killing 4200 Americans in the process (and still counting).
Then he ran the economy to the ground. Worst since the depression!
To top it off, he''s leaving $10 TRILLION debt to our kids and grandkids to pay off.
Because hey, he''s a republican. They don''t believe in taxes but they believe in spending.(because our kids can pay for them).
Worse than his Bush family friend Osama who killed only 3000 Americans.
Heckuva job Bush!
LIAR-IN-CHIEF!
I forgot.
Doom on you, heh heh, doom on you, heh heh, doom on you, heh heh!
A chicken couldn''t cluck as good as you.
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