Stocks turned sharply lower and credit markets remained strained today after the House approved a $700 billion financial rescue plan. While Wall Street was...
NEW YORK — Stocks turned sharply lower and credit markets remained strained today after the House approved a $700 billion financial rescue plan. While Wall Street was pleased by the bill’s passage, investors confronted their worries about a prolonged economic downturn, and sold nervously ahead of the weekend.
As lawmakers voted on the plan, the Dow was up more than 300 points. After it passed, the blue chips moved in and out of positive territory before declining sharply late in the session.
At the close, the Dow was down 157.47, or 1.5 percent, at 10,325.38.
Broader stock indicators also moved lower after fluctuating during the session. The Standard & Poor’s 500 index fell 15.05, or 1.4 percent, to 1,099.23, and the Nasdaq composite index fell 29.33, or 1.5 percent, to 1,947.39.
Most Read Business Stories
- 55,000 in Washington state may have to pay back thousands in jobless benefits
- 1 house, 45 offers: Homebuyers in Western Washington hard-pressed as supply remains scarce
- Boeing CEO gave up millions in pay; here's what he and other top execs earned
- Jeff Bezos gets fraction of legal fees from girlfriend’s brother
- Highlights of the $1.9T COVID bill nearing final passage
“You’re probably seeing a little ‘buy the rumor, sell the news’ mentality,” said Ryan Larson, senior equity trader at Voyageur Asset Management, a subsidiary of RBC Dain Rauscher. Plus, he added, there’s a feeling that this plan “isn’t a quick fix.”
“There are still a lot of problems out there,” Larson said.
Investors had been anxious for resolution on the government’s plan to buy up bad assets from banks and other institutions to shore up the financial industry and help resuscitate credit markets. Trading across markets has been volatile throughout the week based on investors’ reading of whether the plan would win approval; on Monday, the House’s rejection took Wall Street and Capitol Hill by surprise and handed stocks their biggest losses in years.
The Senate subsequently passed a sweetened version of the plan that added tax breaks and raised the limit on federal deposit insurance from $100,000 to $250,000.
Even though President Bush has said he will soon sign off on the plan, investors are contending with worries about the broader economy. On Thursday, the Dow industrials, which have seen triple-digit moves each day this week, fell 348 points on a growing belief that the plan won’t pull the U.S. from an economic downturn.
The credit markets indicated increased demand for safety. The yield on the 3-month Treasury bill, the safest type of investment, fell to 0.50 percent from 0.70 percent late Thursday. Yields have remained low in recent weeks because investors are eager to safeguard their money.
The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.63 percent from 3.64 percent late Thursday.
The dollar was mostly higher against other major currencies, while gold prices fell.
Light, sweet crude fell 27 cents to $93.70 on the New York Mercantile Exchange.
“We’re three weeks into a severe credit crunch and it’s causing untold economic damage to the country,” said Hank Smith, chief investment officer at Haverford Investments. He said while the bill’s passage will help Wall Street, the broader effects of the freeze in the credit markets has yet to emerge.
“It’s fairly reasonable to assume that this should help unfreeze the credit markets, but what we don’t know is what’s happened so far. How much of a dent has it put into the economy?”
The bill’s approval came as investors digested word that Wells Fargo agreed to buy Wachovia in a $15.1 billion deal. That cheered Wall Street because, unlike several recent banking tie-ups, it wasn’t put together at the behest of regulators or using government money. The agreement upends a plan announced Monday by Citigroup to acquire Wachovia’s banking operations for $2.16 billion, a move orchestrated by the Federal Deposit Insurance Corp. (FDIC). However, Citigroup was demanding that Wachovia honor its agreement. The FDIC said it is standing behind the agreement it made with Citigroup.
Investors also appear relieved that the government’s September employment report wasn’t worse, although the Labor Department said payrolls shrank by 159,000, more than the 100,000 economists predicted. The nation’s unemployment rate remained flat at 6.1 percent, as expected.
Wall Street is eager for unemployment to remain in check because widespread job losses could further curb consumer spending, which accounts for more than two-thirds of the nation’s economic activity.
Investors also appeared pleased by a report that the nation’s service sector was slightly stronger than expected last month. The Institute for Supply Management, a trade group of purchasing executives, said its service sector index slipped to 50.2 in September from 50.6 in August. However, the number came in ahead of the reading of 50 that economists had expected, according to Thomson/IFR. A reading above 50 signals growth, while a reading below 50 indicates contraction.