The market posted is worst ever point decline after Congress rejected the $700 billion bailout plan that looked like a sure thing to everyone on Wall Street. That was the problem. As the day wore on it was apparent that the market was nervous and about 1:30 p.m. all hell broke loose after it was clear that the bill would fail.
The Emergency Economic Stabilization Act lost by a vote of 228 (against) to 205 (for). A total of 218 votes were needed to pass. This sent the market into panic mode because the plan was expected to get approval.
By the end of the day, the Dow was down a staggering 777 points and finished at 10,365. The 7% decline was the biggest for the Dow in over 20 years. The Nasdaq fell 9%, or a whopping 200 points, and closed at 1,983. The S&P 500 dropped 9% as well, falling 107 points and ended the session at 1,106.
Talk about getting beat like a rented mule. A sell-off was expected if the bill got shot down but no one on Wall Street expected 10% across the board. They were so sure that the bill would get passed but the market kept giving us great signs that a deal would not get done quickly. Wall Street simply ignored the signs and is now left to deal with the uncertainties. Yes, there will be another meeting on Thursday and yes there is a chance something still gets done.
Look. Something will get done but it will be modified and it will get done when Congress wants to get it done, not Wall Street. I think it was a good move but I still also believe Congress is doing this for the publicity. To be honest though, it is looking like the “good ‘ol buddy” system is in play here because there are too many companies failing at a time when something should have been done by now. It’s like the government is picking and choosing which companies survive and which ones don’t.
Not that it matters, but I would like to see no bailout and let nature run its course. The companies that got into this mess are the ones that should go under for not doing their due diligence. Or, if someone has to pay for it, why not some of the bigger corporations in Amercia? Geez, what did Exxon (XOM, $74.06, down $6.59) make in profits in one quarter? $10 billion. There’s a study out there that shows if the top 20 banks cut their dividend it would pay for the bailout. So yes, there are better ways of doing this.
As far as the market goes, the rest of the week will be crucial if the market hopes to regain any footing.
Rick Rouse
Rick@OptionsMentoring.com
