Stocks fell to their 5 year low, Dow fell below 8,000
November 19, 2008
The Dow Jones industrial average and the S&P closed at their lowest levels since March 2003 on Wednesday amid renewed grim economic outlook from the Federal Reserve and worries over the fate of Detroit's three automakers. Investors are fear that the recession might be even more lingering if the government is unable to bail out the troubled auto industry.
The Dow gave up 5.07 percent to 7,997.28, crossing the 8,000 mark for the first time since its peak in October 2007. It is down nearly 40 percent this year.
The broader index, S&P 500 slipped 6.12 percent to 806.58.
Both, the Dow and S&P 500, closed near their lows of the 2000 to 2002 bear market. The S&P is about 30 points from the 2002 low that marked the end of the last bear market. The Dow industrials are about 700 points above their 2002 low.
Financial stocks led the market lower. Citigroup fell 23 percent to its lowest close since 1995. Bank of America fell 14 percent.
Investors were discouraged by the Federal Reserve's sharply lowered projection for economic activity this year and next.
Investors were anxious that if one of three U.S. automakers collapsed it would have a disastrous impact on the already battered economy. Congressional Democrats have proposed using part of the $700 billion financial bailout package to pump into the ailing auto industry, but Republicans oppose such an approach. Treasury Secretary Henry Paulson has already shot down such an idea.
Stocks have been trading erratically with extremely high volatility for several weeks as the market tries to gauge the direction of the economy. The unprecedented high-volatility has been indicated by the Chicago Board Options Exchange's Volatility Index, CBOE VIX. The index, which uses options prices to gauge investors' nervousness about coming market swings, leapt nearly 10% to finish above 70 for the first time since Oct. 27, when the Dow set its previous closing low. Analysts expect the volatility to continue.
Volatility in the stock market made investors fled to the safety that has kept demand for Treasury securities and Treasury bonds high. The yield on the three-month note fell to near zero and on the two-year note hit 1.110 percent, its lowest since mid-June 2003. The yield on the benchmark 10-year Treasury note fell to 3.32 percent from 3.53 percent on Tuesday.