Reality is setting in, and investors across the world sold their stocks today as they began to realize that the global recession is getting deeper and will last longer than expected. The Dow Jones Industrial Average fell a massive 297.81 points (-3.79%) and the S&P 500 plummeted 37.67 points (-4.56%) to 789.17. Both indexes finished very close to their multi-year lows, and the S&P closed in the 700’s for the first time since November 20th.
One major factor that pulled the markets lower today was the health of U.S. automakers General Motors (GM) and Chrysler. With both companies turning in their restructuring plans to the government today in order to prove their financial viability and their future profit-making ability, many investors are questioning whether these two companies can convince the government that they can repay the billions of dollars that they have borrowed. Investors are worried that the restructuring plans will not be good enough, that the companies cannot prove their financial viability, and that both automakers could potentially file for bankruptcy. As a result, GM shares were down more than 11% on the day.
Obama signed the $787 billion economic stimulus package today, and he also prepared a $50 billion proposal to help homeowners fend off foreclosure. Clearly, these big announcements from Washington did not help the markets from plummeting. Investors have realized that these stimulus plans can only do so much, and that the recession will just have to run its natural course. As people begin to lose faith in the government’s ability to get us out of the economic slump, people are worried because they now have no basis or ability to predict when we are going to get out of the recession.
Everyone is focusing on the horrible state of the economy, and investor confidence is extremely low again. The only company in the Dow Jones to move up today was Wal-Mart (WMT), as it climbed 3.68% to $48.24 on better than expected 4th quarter earnings.
Until tomorrow,
Niki Pezeshki
College Trillionaire
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