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While the debate is on whether stocks are at a bottom, there might be a silver lining to the current financial crisis. Wednesday marked the 12th time the Dow & S&P have both been down by more than 7% over the same 3-day period. Whenever that's happened in the past, it's usually been followed by major increases--even a month later.
While Kraft Foods will be joining the Dow Industrials on Monday, in a way, it's not the first time it has been a part of the Dow.
Kraft Foods is going into the Dow Jones Industrial Average this coming Monday to replace AIG, the insurer that's been taken over by the federal government. Warren Buffett's Berkshire Hathaway is Kraft's biggest stakeholder with about 138 million shares, worth over $4 billion. That's a stake of over 9 percent.
The storm hitting Wall Street ramped up to category 5, and it's not over. Wednesday's markets illustrated in every way the fears investors have been living with since the credit crises began a year ago.
Despite all of the developments this week, with a current market cap of $5.5 billion, AIG remains bigger than just over a quarter of its fellow S&P 500 components.
The unprecedented government rescue of insurance giant AIG calms the market's angst, but the question is whether credit markets will cooperate with the Fed and what other shoes are there left to drop.
With the markets starting down again today before rebounding, here are the top ten 2-day percent and point moves for the major indices. If the Dow closes down more than 23 points today, it would reach a top 10 point move. The S&P would need to close down less than 1 point to reach a top ten status. The Nasdaq is far from a top ten 2-day point or % move.
The already roiled markets have a new fear: the survival of AIG.
The Dow and S&P 500 fell over 4.5% today, while the Nasdaq composite dropped 3.6%, as concerns over the health of the financial sector intensified following the decision of Lehman Brothers to file for Chapter 11.
For the week ending Friday, September 2, 2008, the major U.S. Indices finished up for a week marked with the demise of more financial stocks, sluggish Retail Sales data, a steeper than expected decline in Pending Home Sales, and a looming hurricane in the Gulf of Mexico. Volatility continues to dominate the markets as the Dow posted a 2 day consecutive up/down point move of 569 points on Monday and Tuesday (up 289 and then down 280), its largest 2-day up/down point swing since June 6. The CBOE Volatility Index (VIX) which measures market uncertainty reached an intraday high of 26.67 on Friday.
On a week where Financials dominated the market, Freddie and Fannie lost over 90% of their share price, followed by Lehman at a loss of almost 78%; the markets still managed to close positive on the week.
On the announcement of the Government takeover of Freddie Mac and Fannie Mae, the markets surged on the open. The S&P 500 initially jumped over 30 points, more than it has ever moved on an open.
For the week ending Friday, September 5, 2008, the U.S. markets ended in negative territory for the week after weak employment data and declines in auto and retail sales pointed to weaker consumer spending and a greater economic slowdown. The unemployment rate jumped to a 5-year high, soaring to 6.1%. On Thursday, the three major Indices fell back into bear market territory by dropping 20% from their market peaks set last fall. Both the Dow & Nasdaq Composite had their worst daily closes since July 26, with drops of more than 340 points for the Dow and 75 points for the Nasdaq.
On a wild week in the markets which saw Friday close off its lows as the Dow swung within an almost 200 point range, the markets all close in negative territory for the week by about 3% or more.
Stocks are challenged to hold their ground, and will have a tough time breaking out of the bear's hold this month.
After jumping up over 200 points this morning, the Dow has reversed course and is now in negative territory for the day. The S&P 500 also jumped, rising above 1300 before falling back down. Interestingly, at one point during the swing, the S&P was down more than the Dow was down. The Dow is priced roughly 9 times higher than the S&P 500. Given the difference in scale, it is somewhat unusual to see this happen when they move in the same direction.
Wall Street will get back to business fast Tuesday as it assesses the aftermath of Hurricane Gustav and starts to consider the first of a number of important economic reports this week.
Gustav has unfurled a wall of worry for stocks in the week ahead.
For the week and month ending Friday, August 29, 2008, the major U.S. Indices ended slightly lower for the week but up for the month. The markets had a volatile week, sinking first on housing price drops and an up-tick in oil prices, then rallying on better-than-expected GDP numbers, and finally falling to end the week on worse-than-expected personal income and spending data. The Dow hit a 200+ point rally on Thursday, its largest one day gain since 8/8. The NASDAQ led the indices to the downside this week, down nearly 2%. For the August close, the Dow, Nasdaq and S&P all finished up 1.5% or more, marking the best monthly gain since April for the Dow & S&P, and best month for the Nasdaq since May.
The market rallies on Friday with the Dow, NASDAQ and S&P all up 1% or more, on light volume, but Friday's gains are not enough to boost the market's weekly performance out of negative territory. Energy stocks dominate.