Market Recap - March 23, 2009

The stock market skyrocketed on Monday, as Treasury Secretary Timothy Geithner announced the details of the government’s plan to help the troubled financial system.  The Dow Jones Industrial Average gained 497 points (6.84%) and the S&P 500 surged 54.38 points (7.08%)!

The government’s plan is called the Public-Private Investment Program (PPIP), and it will provide banks with up to $1 trillion in financing in order to get them to start lending again.  The great thing about this plan is that it involves the private sector.  It is a very confusing plan, but if you want to read a good summary of it, check out this link: http://www.thestreet.com/story/10476062/1/geithner-plan-may-aim-1-trillion-at-bad-assets.html.

Another catalyst for today’s jump came from the housing sector.  The National Association of Realtors’ reported that home sales greatly increased in the month of February.  From the month of January to February,  home sales grew 5.1%.  While home prices are still at 10-year lows, many people took the jump in home sales as a sign that people are taking advantage of the low prices.  While this might dilute the impressive numbers, it is still good to know that people are starting to spend more on bigger purchases. 

Today’s jump was unbelievable, as the S&P 500 doesn’t always increase by 7% in one year, let alone in one day!  The good news continues to flow out of Washington and the economy seems to be turning around for the better.  A lot of people are saying that this is a temporary rally, and that we need to retest the lows one more time in order to ensure a bottom.  Right now might be a great time to take some profits and sell some shares.

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - March 18, 2009

Investors saw stocks gain today as the Federal Reserve announced that it would be taking some major steps to stabilize the economy. The Dow Jones Industrial Average gained 90.88 points (1.2%) while the S&P 500 rose 16.23 points (2.1%). Continuing a remarkable rally, the markets have ended in positive territory for 6 of the last 7 days.

Ben Bernanke and the rest of the Federal Reserve’s leading committee are making moves… big moves. The Fed announced today that it would be spending $1.2 trillion (yes, with a ‘T’) in a gargantuan effort to stabilize the financial markets. It will use $300 billion to buy long-term government bonds, $750 billion to purchase mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, and $200 billion to buy debt from those two companies.

The Fed already bought $500 billion in similar mortgage-backed securities from Fannie and Freddie last year. These two government-created companies own or guarantee between 40% and 60% of all American mortgages. Economists and analysts believe that the $500B purchase was the major factor behind a decrease in mortgage rates from about 6% down to 5%. Purchasing $750 billion more in these securities should drive mortgage rates even lower. This would provide a major incentive for people to buy homes.

The purchases of mortgage-backed securities and long-term government bonds were made in efforts to encourage lending. The Fed believes that buying bonds and securities will lower interest rates. Lower interest rates will allow banks to give credit at lower costs to borrowers.

It’s important to understand that the Federal Reserve funds these purchases by simply printing money. From a long-term perspective, adding cash to the money market will devalue the U.S. dollar. While preventing deflation is the Fed’s current goal, many analysts and experts believe that the massive amount of government spending will cause inflation in the future.

Criticisms aside, investors reacted positively to the Fed’s announcement by sending the markets higher. Federal Reserve Chairman Bernanke has a good head on his shoulders, and knows the Great Depression like the back of his hand. If there is one man we can trust with the economy, it’s him. Let’s hope the good news keeps coming in and the markets keep moving up.

Until tomorrow,

 

-Matt Schwartz

College Trillionaire

Market Recap - March 17, 2009

Stocks continued their unbelievable rally on Tuesday, backed by some great news on the housing market! The Dow Jones Industrial Average finished higher 178.73 points (2.48%), the S&P 500 increased 24.23 points (3.21%), and the NASDAQ jumped 58.09 points (4.14%)!

The government reported today that home construction picked up in February, and the market responded very favorably to the unexpected news.  Investors saw this news as another piece of evidence that the economy has bottomed and is starting to turn around.  With Citigroup (C) and Bank of America (BAC) both reporting recently that they were profitable in the first two months of the year, people began to sense a turnaround in the economy.  Now it seems like good news, like this most recent housing report, comes out every day to give the markets even more momentum to the upside.

The tone in the markets is almost unrecognizable, as people have moved from a state of never-ending gloom to a state of hope that this rally has the potential to be sustainable.  Whether or not this rally will be sustainable and we truly have moved up from the bottom is still yet to be seen, but the fact that this rally has been backed by upbeat economic news makes it seem much more realistic than the 20% rally that occurred from November 21^st to the end of 2008. 

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - March 16, 2009

The markets edged slightly lower today, ending a four-day rally that began last week. The Dow Jones industrial average fell 7.01 points (-.10%) and the S&P 500 dropped 2.66 points (-.35%).

Stocks continued their gains today until the Dow was up 169 points. After reaching this level investors steadily sold off, taking gains until the indexes closed in negative territory. The profit taking was a part of normal market behavior, analysts said.

American International Group paid out an estimated $165 million in bonuses last Friday to top executives. These extra payments came after taxpayers have given the company $170 billion in bailouts since September of 2008. President Obama asked, “How do they justify this outrage to the taxpayers who are keeping the company afloat?”

Even though the markets ended the day lower than they began, we witnessed a good sign in the form of investor optimism this morning. Traders weren’t given much in the form of news today, yet stocks still rose until the afternoon. Confidence is key in the process of discovering a bottom.

 

-Matt Schwartz

College Trillionaire

Market Recap - March 12, 2009

The stock market rally continued today, as the major indexes were up for the third straight day.  The Dow Jones Industrial Average increased 239.66 points (2.46%) and the S&P 500 was higher 29.38 points (4.07%).  Over the past three days, the Dow has jumped 622 points (9.5%)!

One of the major reasons for the continued uptrend came from the announcement that accounting rules for companies, especially banks, may be eased.  This is great news for banks, as their bottom lines will greatly improve with the ability to avoid mark-to-market accounting practices. 

Investors were also very happy with General Electric (GE), as Standard & Poor’s cut the company’s credit rating less than expected.  GE was up 12.7% on the day.  General Motors (GM) was also up big today (17.2%) on news that the company will not need the $2 billion of government aid that it had originally asked for. 

This was a great week for the market and, for the first time in a long time, investors were treated with more good news than bad news about the economy and about specific companies.  With so many people on the sidelines with cash waiting for the right time to get into the market, there is no reason to think that the rally won’t continue as long as the good news keeps flowing. 

Also, Bernie Madoff pleaded guilty today and was sent to jail without bail.  He could get up to 150 years in prison. 

Until next week,

 

Niki Pezeshki

College Trillionaire

Market Recap - March 11, 2009

Yesterday’s uplifting rally didn’t see much of a continuation today, as the markets barely held on to a gain. The Dow Jones industrial average rose 3.91 (.1%) to end the day at 6930.4 and the S&P 500 rose 1.76 (.2%). The Dow’s two-day trip into positive territory marks the first consecutive gains since February 5-6.

Investors, optimistic after hearing good news yesterday from Citigroup and the government (regarding the possible reinstatement of the uptick rule), battled hard to keep the indices in the green today. The Dow flip-flopped a remarkable 37 times today between gains and losses.

Holding onto Tuesday’s gains was difficult because investors didn’t hear any good news today. Renewed worries surrounding the housing market were incited as Freddie Mac announced that it will be asking the government for $31 billion in additional aid. The company is one of two housing entities that were seized by the government last fall. Along with the other company, Fannie Mae, Freddie Mac owns or guarantees over 50% of all U.S. home loans. The company’s need for aid points to continuing trouble in the housing sector.

Investors were also informed of escalating unemployment. At least 5.1 million people are currently receiving state unemployment insurance. Four states posted unemployment rates above 10% in January: California, South Carolina, Michigan, and Rhode Island. The crucial indicator of an economy’s strength, national unemployment, has steadily increased for the last several months.

Nevertheless, it is apparent that investors are ready to buy. One drop of good news from Citigroup yesterday sent them on a purchasing spree. While the fundamentals behind the economy are still moving downward, we’re beginning to see a trickle of beneficial signs. I would definitely expect investors to react positively to any good information that comes their way.

Until tomorrow,

 

-Matt Schwartz

College Trillionaire

Market Recap - March 10, 2009

It was a great day on Wall Street, as the major indexes skyrocketed upwards on great news from the financial sector.  The Dow Jones Industrial average ended higher 379.44 points (5.8%), the S&P 500 increased 43.07 points (6.37%), and the NASDAQ jumped 89.64 points (7.07%)!  The market hasn’t seen a rally this big since November of 2008!

The rally really started today on news that Citigroup (C) was profitable in the first two months of 2009.  The company’s CEO, Vikram Pandit, also said that he is confident about the bank’s capital strength.  Citigroup ended the day 38.1% higher as a result of the good news.  Other banks and financial companies also traded much higher, with Bank of America (BAC) gaining 27.73%, General Electric (GE) gaining 19.7%, and Capital One (COF) gaining 15.12%. 

Another piece of news that greatly helped the financial sector was that the uptick rule might soon be restored.  The uptick rule essentially makes it so that you can only short sell a stock after the last trade of the stock was positive.  Investors are big supporters of the uptick rule, as the ability to short beaten down financial stocks throughout this economic downturn has continued to pull shares of bank stocks lower and lower.  With an uptick rule, less people will be able to short bank stocks, and thus confidence will hopefully be restored. 

The question now becomes, was this just a one day rally, or did today mark a bottom in the stock market?  It is important to note that throughout the ongoing stock market crash, experts have been saying that until the financial system and banks are fixed, the market will not recover.  With Citigroup’s announcement today, is it proof that the banking companies are starting to turn around?  One thing that is for sure is that the economy is still very problematic, and that the unemployment rate is still very high.  Having said that, it has been noted on many historical occasions that the stock market usually recovers six months before the economy does after a recession.  So, it will be very interesting to see how the markets react tomorrow after today’s huge rally.  Will people continue to be optimistic, or will people take some profits and sell stocks tomorrow knowing that the economy is still in shambles?

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - March 9, 2009

Last week’s major sell-offs and occasional rallies made today’s market action seem weak, as investors gradually sold stocks. The Dow Jones industrial average fell 79.89, or 1.2%, while the S&P 500 fell 6.85, or 1%. Both indexes have dropped 25 percent this year alone.

The United Auto Workers (UAW) approved contract changes for Ford (F) today. The unions agreed to allow Ford to freeze wages and cut benefits for laid off workers in an effort to stay competitive amid harsh economic conditions. Ironically, Ford is the one American automaker that has not asked for government assistance. General Motors (GM) and privately owned Chrysler LLC have yet to make contractual changes with workers. If and when they do make changes, the Ford contract will serve as a model for alterations.

On an unusual note, the financial sector actually rallied today! Bank of America (BAC) gained 61 cents, or 19.43% while Wells Fargo (WFC) was up $1.36, or 15.80%. These gains come after the stocks were completely battered by nationalization fears in the past few weeks. Analysts don’t believe that today’s financial rallies can be attributed to any sort of fundamental change, as investors are probably scooping up the stocks while they’re down in hopes that long term returns will be made.

Pharmaceutical company Merck (MRK) announced today that it will be buying Schering-Plough (SGP) in a $41.1 billion deal. The acquisition will make Merck the second largest pharmaceutical company and help it expand its business while cutting costs. This deal comes several weeks after pharmaceutical giant Pfizer (PFE) announced a buyout of Wyeth. Increased pressure from the troubled economy and difficult healthcare regulations announced by President Barack Obama have led drug companies to come together to stay economically viable.

While stocks still lost today, it was good to see the markets act more tamely. Investors are tentatively buying and selling in hopes of discovering a bottom.

 

-Matt Schwartz

College Trillionaire

Market Recap - March 5, 2009

Wednesday’s comeback didn’t last. The markets tumbled today as General Motors (GM) and Citigroup (C) continued to show horrible signs. The Dow Jones industrial average dropped 281.4 points (-4.09%) to 6594.44 and the S&P 500 lost 30.32 points (-4.25%) to end the day at 682.55.

In a report given today, GM said that it was nearing bankruptcy. Independent auditors analyzing the company stated that there is “substantial doubt” as to whether GM can overcome massive losses and bring in enough money to stay in business. The odds are stacked against the Detroit-based automaker, as it must prove to the government by March 31^st that the company can become viable again. GM posted a $30.9 billion loss last year; it has been helped by $13.4 billion of government loans and the company is seeking up to $30 billion more. The company lost 34 cents, or 15.5%, to end at $1.86 on the day.

Thinking of Citigroup’s history in the past months brings images of trains derailing in my mind. The major bank has suffered nothing short of a catastrophe: it used to be the biggest publicly traded bank based on assets and market capitalization, but its market cap is currently $6.2 billion, whereas in early 2008 it was around $270 billion. The company’s stock was trading above $20. At one point today, the stock traded at 97 pennies per share.

Tomorrow will be an incredibly important day for the markets, as the government’s February jobs report will be released. Analysts surveyed by Reuters expect that 648,000 jobs were lost last month. Losing this number of jobs would bring the unemployment rate to 7.9%. These expectations alone are dismal: this unemployment rate would be a 25-year high. We could see a horrible day on the markets if actual job losses are greater than the expected number.

As the market dips lower and lower, wary investors will search for signs of a bottom. To find a bottom, we need to determine the overall market sentiment. If people believe things can get worse, we haven’t seen a bottom. When people yank their hair out and scream that things “can’t get any worse”… a bottom may be in sight. While this makes for a painful process, let’s hope the bottom comes sooner rather than later.

-Matt Schwartz

College Trillionaire

Market Recap - March 4, 2009

After 5 consecutive days of selling, investors finally pushed the markets substantially higher today! The Dow Jones Industrial average increased 149.82 points (2.23%) and the S&P 500 was also up 16.54 points (2.38%)

A major piece of news that boosted the markets came from Washington, as Obama’s foreclosure prevention program went into effect today.  The program’s official name is the Homeowner Affordability and Stability Plan, and it will provide $75 billion to help around 9 million struggling homeowners avoid foreclosure.  The government will use the money to help homeowners refinance into lower interest rates and will also use the money to give incentives to lenders to restructure mortgages to more affordable levels.  As a result of this plan, the government is hoping to decrease the number of foreclosures and to help ease homeowner worries.

The markets were also up on news that China is ramping up its economic stimulus plan.  China will spend billions on infrastructure in order to boost consumer spending and to create jobs.  As a result of the increased government spending, oil and other commodity prices soared due to expectations of higher demand. 

But, then again, maybe the markets went up today strictly because stocks can’t go down forever.  At some point, there are going to be investors who think that the markets have just been too oversold and feel like some stocks are undervalued.  After five straight days of selling, and after reaching lows in the major indexes that have not been seen since the mid-1990s, the bargain hunters were out in full force today.

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - March 3, 2009

The markets showed some signs of hope today, as some investors picked up declining stocks. Despite a few small rallies, the Dow Jones industrial average and the S&P 500 ended down for the 5^th consecutive day. The Dow fell 37.27 points (-.55%) while the S&P dropped 4.49 points (.64%). The S&P closed below 700 for the first time since 1996.

The Federal Reserve Chairman sat in front of Congress today and defended the $30 billion bailout of the American International Group (AIG) that was announced yesterday. Monday’s bailout marked the fourth time that the government has rescued the troubled insurance group. Bernanke said that allowing the company to fall would create a destructive financial chain reaction. Critics believe that the Fed has put itself in a terrible position: they’ve put too much money into AIG let the company fall, but the company will continue to need more support in the future.

Bernanke also announced the new Term Asset-Backed Securities Loan Facility (TALF) program. The Fed and Treasury Department will buy out $200 billion worth of securities that own debt. These securities are mostly backed by credit card loans, auto loans, and student loans. This program will definitely put more credit in the markets and allow more people to get loans. Despite this, some are worried that the government will disturb the credit markets because investors will be less attracted to those securities that aren’t backed by the government.

Blockbuster (BBI), saw its share price plummet nearly 80% in 10 minutes today, as the stock closed down 74 cents, or 77.1%, to settle at a price of 22 cents. Investors sold en masse as reports circulated regarding a possible bankruptcy. A company spokesperson said that Blockbuster does not intend to file for bankruptcy protection.

Even though the markets ended in the red today, we saw investors attempt to scoop up stocks at lower prices. While the time and location of a possible bottom are still unknown, it is reassuring to see that people still see opportunity in the recent drops.

Until tomorrow,

 

-Matt Schwartz

College Trillionaire

Market Recap - March 2, 2009

The Dow Jones Industrial Average fell below 7,000 for the first time in more than 11 years in another disheartening and depressing day on Wall Street.  The markets were pulled down by continued fear of financial companies and more uncertainty about the deepening recession.  The Dow Jones fell 299.64 points (4.24%) and the S&P 500 also plunged 34.27 points (4.66%).

The biggest news of the day came from insurance company American International Group (AIG), as the company posted an unbelievably huge $61.7 billion quarterly loss.  AIG will receive another $30 billion bailout loan from the government, but investors wondered whether that would even be enough. 

With this news about AIG and rumors still floating around about Citigroup (C) becoming nationalized, many investors feel like they underestimated how problematic our financial sectors actually were.  With this new realization of how bad things actually are, the sell-offs will continue. 

Warren Buffet also posted a letter to investors over the weekend telling Berkshire Hathaway (BRK-A) investors that the company had its worst year ever in 2008, and that he expects that economy to remain in “shambles” in 2009 and probably beyond. 

How low can the markets go? Will the Dow break 6,000 soon?  Have we reached a bottom in the stock market? These are all very legitimate questions, but the markets are so volatile and unpredictable these days, that the only way to find out is to wait and watch.

Until tomorrow,

Niki Pezeshki

College Trillionaire

Market Recap - February 27, 2009

February was absolutely terrible for Wall Street. The Dow Jones industrial average dropped 11.7% this month. It was the worst February since 1933, when the Dow fell 15.6%. Today was no exception. The Dow dropped 119 points, or 1.7%, to 7,063 and the S&P 500 lost 17.74 points, or 2.4%, to settle at 735.09. Investors dumped shares of financials as the U.S. government announced that it would be taking a larger stake in Citigroup (C), while General Electric (GE) announced a dividend cut.

The U.S. government announced today that it would be converting $25 billion of Citigroup’s preferred stock into common stock. While the U.S. already owned the preferred shares, the conversion will raise the government’s ownership from 8% to 36%. Investors were terrified by potential dilution of value in Citigroup’s shares, and the company’s stock price plummeted by 39%, losing 96 cents to fall to $1.50.

Citigroup wasn’t the only financial company to suffer. Wells Fargo (WFC) lost $2.30, or 16% and Bank of America (BAC) dropped $1.37, or 25.75%. Similar plans to the Citigroup deal may be enacted for Wells and BAC, and the fear of that happening led to the big sell-off for both of those companies.

The Government’s GDP report that was released today showed that the production of the U.S. economy fell at a 6.2% annual pace at the end of 2008. This means that the value of all the goods and services in the United States is falling at a faster pace than expected. Major companies are taking hits as a result. GE reported that the company would be cutting its quarterly dividend by 68% in an effort save $9 billion per year.  This is the first time that GE has cut its dividend since 1950!

Wall Street handled the surge of bad news fairly well today, especially considering the severity and volume of bad news that was thrown at investors today. February was horrible, but let’s hope that March will be better.

Until next week,

 

-Matt Schwartz

College Trillionaire

Market Recap - February 26, 2009

Healthcare stocks pulled down the overall market today, as the White House proposed cutting payments to private insurance plans as part of the new government budget.  The Dow Jones Industrial Average ended the day down 88.81 points (-1.22%) and the S&P 500 also fell 12.07 points (-1.58%). 

Obama’s proposed $3.55 trillion budget will cut government funding of health insurance programs like Medicare and Medicaid.  This decrease in funding will directly hurt healthcare companies, as many of their customers and much of their revenues come from government healthcare plans.  Pharmaceutical company Merck (MCK) was the worst performer in the Dow Jones today as a result of this news, and the company’s stock price fell 6.7%. 

Bank stocks traded mostly higher today on news that the government could provide up to $750 billion more in support of struggling banking companies.  While the money will be held just for emergencies and will not be immediately injected into the banking sector, investors were glad that the government is taking more steps to save the banking sector. 

A lot of poor economic news was also announced today, as jobless claims continue to rise more than expected, home sales are falling to record lows, and U.S. factory activity is also declining every month.  This continued bad economic news quells any chance for optimism, as the news gives investors a dose of reality and shows that an economic turnaround might not come for a while. 

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

 

Market Recap - February 25, 2009

Wall Street was extremely volatile today, as stocks drastically climbed and fell throughout the trading session, but eventually ended with a loss.  The Dow Jones Industrial Average fell 80.05 points (-1.09%) and the S&P also ended down 8.24 points (-1.07%). 

One of the main factors that pulled stocks down came from an unexpectedly bad home sales report.  Home sales in January fell to their lowest levels since 1997, as potential buyers worried about their job security and many potential buyers held off until they could hear more from Obama’s housing market plans.  In order to try to boost demand in the housing market, government officials announced a new $8,000 tax credit for first-time buyers today.   

Factors that pushed came mostly from government help to the banking and financial sector.  The government confirmed that it would buy preferred shares from banks using TARP money, thus giving the banks more capital to work with.  In addition, Federal Reserve Chairman Ben Bernanke reassured investors by claiming that banks will not be nationalized. 

The volatility today came from a sense of uncertainty, as investors just don’t know where to look for clues anymore.  With horrible housing numbers but reassurance from the government for banks, there are many factors pulling some stocks down and other factors simultaneously pushing other stocks up.

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - February 24, 2009

Stocks traded higher on Tuesday, as Federal Reserve Chairman Ben Bernanke gave investors some hope.  The Dow Jones Inudstrial Average shot up 236.16 points (3.32%) and the S&P 500 also climbed 29.81 points (4.01%). 

Bernanke made a bold prediction that the recession will at the end of this year.  Although he said the economy will continue to contract for the first six months of 2009, investors were very excited about his optimistic prediction for the end of 2009.  Investors are also highly anticipating Obama’s speech on how he plans on stabilizing the financial system and his plans on further stimulating the economy.  Wall Street will be looking for specific details in Obama’s speech, and if investors are happy with the details, the markets could continue to push upward from their multi-year lows. 

The economy is still very shaky, and today’s upward movement in the markets were mostly due to a prediction by the Fed Chairman, anticipation over Obama’s speech scheduled for tonight, and some investors taking advantage of stocks that have possibly been oversold.  Until the markets go higher based on concrete positive economic news, the stock market fluctuations will continue to be very unstable and volatile.

Obama’s speech tonight should be very interesting, and the markets tomorrow will definitely reflect what investors thought of his speech in terms of how specific it was and whether his detailed plans will actually be positive and help stimulate the economy and the financial system.  So, definitely try to watch the speech tonight and decide whether or not you think he does a good job of instilling hope through specific plans.

Until tomorrow,

 

Niki Pezeshki

College Trillionaire

Market Recap - February 23, 2009

The markets closed today at the lowest levels since May of 1997. The Dow Jones industrial average dropped 250 points, or 3.41%, to settle at 7114. The Standard & Poor's 500 index fell 26.72 points, or 3.47%, to end the day at 743.33. A major lack of clarity has led investors to fear the future, and the actions of major indexes today reflect their concern.

The government attempted to pacify worries about the struggling financial system today by announcing new plans to help banks. Under the most recent plan, the government would buy convertible preferred shares (preferred shares that can be converted into common shares) to inject capital into needy banks. If executed, the plan could leave the government with up to 40% ownership of Citigroup (C).

While the announcement shows a solid initiative to make improvements, the increased government involvement is also scaring investors. Alarming rumors of complete government takeovers and nationalization of banks have been widespread. The White House and President Obama have maintained their backing of a privately held banking system to ease the worries.

Amidst the announcements of financial stimulus, Obama also publicized his plan to cut the government's annual budget deficit in half by the end of his four-year term. President Obama inherited an estimated yearly deficit of $1.3 trillion from Past President Bush. The total current government debt is estimated to be $10.8 trillion. As a country, we're paying over $250 billion in interest on the national debt every year. Obama plans on lowering the debt and slashing the deficit by phasing out the Iraq war, raising taxes on the wealthy, and making government programs more efficient.

Still, announcements of government aid and proposals were unable to quell the overwhelming amount of pessimism on Wall Street. The gloomy mood will be here to stay until the economy and Main Street show signs of improvement.

Until tomorrow,

-Matt Schwartz

College Trillionaires

Market Recap - February 20, 2009

The markets capped off a horrible week with another dismal day. Investors are timidly selling off because of a general lack of confidence. People are realizing that the rally that occurred in late 2008 was based on hope and unfounded government promises. A lack of good news has caused pessimism and a lack of tangible results from government initiatives has caused a lack of trust.

The Dow Jones industrial average quickly tumbled 200 points early today, but took on a late day rally to end down 100.28 points, or 1.3% on the day. The S&P 500 lost 8.89 points, or 1.14% on the day. The Dow and the S&P fell 6.2% and 6.9% respectively for the week.

The losses today were mainly the result of a struggling financial sector. Shares of Citigroup (C) dove over 20% on the day, and Bank of America (BAC) lost 3.56%. Talk of government takeover, or nationalization, of these major banks has been widespread throughout the week. Investors fear nationalization because government takeover would cause shareholders to lose everything. Free market advocates are terrified by the potential, as any government takeover would be a large step away from capitalism.

Investors were reassured late in the day when White House press secretary Robert Gibbs spoke on behalf of the Obama administration and said they maintain a belief in a "privately held banking system." Stocks briefly shot up after this statement, giving the Dow a quick look at the green, but then fell back to their current level.

Trouble in the financial sector equates to trouble for all sectors. The banks can no longer pump credit out into the markets, and consumers have less money to spend. The government has pinned itself by dolling billions of dollars to banks that were 'too big to fail.' The banks still need more money, and the government won't let them fall. Investors and the general public are going to need some reassurance from the financial sector before we will see a recovery from the economic recession.

See you next week,

-Matt Schwartz

College Trillionaire

Market Recap - February 19, 2009

Things just keep getting worse on Wall Street, as the Dow Jones Industrial fell to its lowest level in more than six years.  It was the lowest close for the Dow since October 9, 2002!  The Dow finished the day down 89.68 points (-1.19%) at 7,465.95, while the S&P 500 also fell 9.48 points (-1.20%) and remained in the 700 range at 778.94. 

Falling to record lows is very disheartening, and it has filled the stock market with immense pessimism.  Factors that have continued to pull the markets down recently include a sense of uncertainty in the search for an end to the recession, continued depressing news from financial and bank companies, and the stale economic stimulus package and mortgage relief plan that have been heavily criticized recently. 

A lot of incoming news today also heightened the pessimism on Wall Street.  The number of workers receiving unemployment benefits hit a record high of nearly 5 million.  Both Citigroup and Bank of America also fell around 14% on increased concerns that the government will nationalize the two banks.  And, Hewlett Packard also dropped 7.9% after it announced disappointing 4^th quarter earnings. 

Having reached new lows today, we are now in uncharted waters moving forward.  Will the psychologically depressing news from today continue to pull the markets down, or will the new lows from today signal a bottom that will lead to a huge rally?  No one really knows the answer to this question, but almost every investor is extremely curious to find out.

 Until tomorrow,

Niki Pezeshki

College Trillionaire

Market Recap - February 18, 2009

The markets were stagnant today as investors shrugged off a mix of news that included new plans for the government to help homebuyers and a weakened outlook for the economy by the Federal Reserve. The Dow Jones industrial average gained 3 points (.1%) to settle at 7,555.63 and the S&P 500 fell .75 points (-.1%) to end the day at 788.42.

President Obama has announced a $75 billion Homeowner Stability Initiative today with the intent of motivating lenders to allow borrowers to refinance mortgages. Obama said that the new plan will save up to 9 million homeowners from foreclosures. The initiative was shrugged off by investors on Wall Street, though, as stocks were sent lower in the beginning of the day.

The Federal Reserve lowered its estimates for general economic numbers for 2009 today. It is currently projecting that the unemployment rate will reach between 8.5% and 8.8% this year. The Fed forecasts that we will see general economic contraction for the entirety of this year at a rate of .5% to 1.3%. This would mark the first full year of economic contraction since 1991.

General Motors (GM) announced that it would need additional aid from the government. The automaker is asking the government for $21.6 billion, and the company has already received $17.4 billion. Government officials are faced with a dilemma: either fall into a slippery slope of handing out cash, or allow GM to fall and lose hundreds of thousands of jobs.

It appears that investors had already anticipated the gloomy economic conditions that are forthcoming, as the bad news from the Fed didn’t hurt the market today. It also appears that investors have a general lack of confidence in the government’s attempts to save the economy. The market has fallen since Obama signed the economic stimulus bill, and we didn’t see an upswing today after the President announced the Homeowner Stability Initiative. It’s difficult to tell whether the indifference will be a good or bad thing for the markets in upcoming days.

 

-Matt Schwartz

College Trillionaire