Stock prices plunged on Wall Street yesterday as a fresh wave of anxiety swept across the markets over the banking industry’s struggle with the mounting credit crisis.
The Dow Jones Industrial Average slumped by 360 points to 13,300 – its fifth worst day of the year. It was second drop of more than 300 points in a week.
Lets all hope were not in for another ride like the 1929 Stock Market crash. It lasted from 1929 to 1954, some companies dropping by over 35%+ in a day!
General Motors’ record loss contributed to the gloom, as did forecasts of a potential $6bn (£2.8bn) write-off of bad debts at Morgan Stanley.
Investors are becoming increasingly nervous about the extent of financial institutions’ exposure to complex mortgage-related credit instruments which have become almost impossible to sell since thousands of homeowners began defaulting on mortgage repayments over the summer.
New York state’s attorney general, Andrew Cuomo, heightened alarm about the health of the banking sector by widening an investigation into alleged collusion to support house prices.
America’s largest savings and loan association Washington Mutual, which is at the centre of the inquiry, led the stock market down as its shares collapsed by 17%.
“Today was just not a great day to get out of bed if you’re an equity trader,” Liam Dalton, chief executive of Axiom Capital Management in New York, told Bloomberg News.
America’s banking shares fell by an average of 5.35% – the biggest one-day drop ever recorded. Morgan Stanley’s shares dropped by 6%, Lehman Brothers was down by 5.7%, Goldman Sachs slipped by 4% and Merrill Lynch lost 4.2%.
David Darst, chief investment strategist at Morgan Stanley’s global investment group, said: “The financials are the bodyguards of the market and when the bodyguards are taking shots then the market can’t do well.”
Broader stock market indices followed a similar pattern. The hi-tech Nasdaq exchange dropped by 2.7%, its worst outcome since February. The Standard & Poor’s 500 fell by 44 points to 1,475. Declines on the New York Stock Exchange were sufficient for the implementation of trading curbs, designed to calm volatility.
The number of falling shares outstripped rising prices by a margin of ten-to-one. Concern about corporate earnings has been aggravated by a continuing upward march in the price of oil, which has come close to $100 a barrel this week.
Credit market turmoil has led to the departure of two of Wall Street’s biggest names in recent weeks – Citigroup’s former boss Charles Prince and Merrill Lynch’s Stan O’Neal.
Citigroup’s former boss and his fellow executives were hit with a lawsuit filed in Manhattan yesterday by shareholders accusing them of “reckless actions” in spending “billions of dollars purchasing sub-prime loans”.
It is my opinion that July and August will be key months that will make or break the market. Keep a keen eye on the Dow Jones, and be very wary of its movements (tracking its week’s price highs and lows). I myself, much like the rest of Wall Street and Bay Street have been patient and remain relatively optimistic on the future outlook. Why? Well… lets hope for all our sakes that the Feds have learned from the 1990′s stock market crash, because if they haven’t — I don’t think we’ll be celebrating Christmas this year. 
