Market Recap - January 30, 2009

The stock market fell again on the last trading day of January, as a flurry of bad economic, political, and corporate news continued to scare investors.  The Dow Jones Industrial Average finished down 148.15 points (-1.82%) and the S&P 500 slumped 19.26 points (-2.28%).

One reason for the drop in the markets was due to the 4^th quarter Gross Domestic Product report.  The Commerce Department reported a 3.8% fall in GDP for the 4^th quarter of 2008.  This was the worst GDP output since the first quarter of 1982, and it was the first time since 1991 that the United States has experienced two consecutive quarters of declining GDP.  Many economists are also predicting that the 1^st quarter of 2009 will be even worse than the 4^th quarter of 2008, a prediction that is scary to many investors.

In politics, the Obama administration’s “bad bank” plan, which would help banks by buying their troubled assets, is experiencing delays.  The news that the plan is moving slower than first expected sent financial stocks lower today and greatly decreased investor confidence in the financial sector.

Many companies also announced more layoffs and predicted a bleak forecast for the near future.  Morgan Stanley (MS) and Goldman Sachs (GS) are both considering laying off a big chunk of their employees.  Honda (HMC) slashed its 2009 profit targets by more than 50% as its earnings fell over 90% in the 4^th quarter of 2008.  Even Proctor & Gamble (PG), which is a consumer staple company that sells household products such as toothpaste and laundry detergent, reported a 3% decline in sales for the 4^th quarter of 2008.  The company, which is usually unaffected by economic downturns due to its essential consumer products, lowered its earnings projections for 2009.

This past week was marked again by extreme volatility as a result of both good and bad political news, economic reports, and corporate earnings announcements. Next week should be just as volatile, as investors try to gauge where our economy is headed and how quickly Obama’s plans will be put into place.  The $819 billion stimulus plan will be voted on in the Senate next week, and the outcome of the Senate’s vote will definitely make a huge impact on the markets. 

Have a great weekend.

 

Niki Pezeshki

College Trillionaire