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Friday’s Market Recap (9/19/2008)

Posted on: September 19, 2008 - Email Article - Printable Version

Brian Clionsky

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The markets rallied today as investors reacted to the government’s rescue plan and the temporary ban on short-selling stocks of financial companies. The Dow Jones Industrial Average rose 3.35% up 368.75 points. The S&P500 posted its biggest 2-day gain in nearly 6 years and ended today’s session up 48.57 points or 4.03% to close at 1,255.08. The Nasdaq closed at 2,273.90 up 74.80 points or 3.40%. The 10 year Treasury rose 966 basis points to 3.7690%.

The Federal Reserve announced it will expand its emergency lending plans and allow commercial banks to purchases asset-backed paper with money market funds. The Fed will also buy short-term debt obligations issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Treasury Department announced today that it will tap into a fund of $50 billion which was created during the Depression to provide a guarantee for the money market assets. Treasury Secretary Henry Paulson said that the government’s intervention plan could cost hundreds of billions. Although Paulson gave few details about his plan, but he did comment on the cost, stating, “We’re talking hundreds of billions of dollars - this needs to be big enough to make a real difference and get at the heart of the problem. This is the way we stabilize the system.” Most likely, the Treasury will help banks clear their balance sheets of mortgages by purchasing them at a discount through a potential bidding process in which the lowest bidding company will win. We will have to wait and see further details of the government’s plan which will also give us a better idea of how much this plan will cost.

The US Securities and Exchange commission went through with the proposed ban, in what it called an “emergency action”, and temporarily banned short-selling of 799 financial companies. Short sellers borrow stock with the intentions of selling the stock, and then buying the stock back at a lower price and profiting on the difference. The SEC believes that short selling has greatly contributed to the market’s current breakdown and hopes that this ban will restore equilibrium to the markets. Late in the session news broke that the SEC would like to change its ban and allow some short selling with limitations and we will have to see how the terms of this short selling ban continues to evolve.

Crude Oil prices rose above the $100 mark today, rising $6.67 to settle at $104.55 a barrel as many investors re-entered the commodity market. Crude oil is up almost $13 over the past three days during the heart of Wall Street’s financial crisis and the government’s intervention plan. Surprisingly, the Dollar has not taken a significant hit, trading at 0.6909 vs. the Euro, only down slightly from yesterday, and trading at 107.58 vs. the Yen. Surprisingly, many investors turned on Gold today, as the Dollar remained strong, and Gold fell $32.10 or 3.60% to $860.60 per ounce.

A report came out today stating that Citigroup [C: 7.08, 0.00 (0.00%)] is considering making a bid for Washington Mutual [WM: 0.1604, 0.00 (0.00%)], however, there is no certainty of the deal. Another report cited JP Morgan [JPM: 29.25, 0.00 (0.00%)] is considering a potential bid of WaMu so it will be interesting to see what comes out of the speculation this weekend and next week as it is almost certain that WaMu will not remain independent much longer.