House kills bailout plan: Dow Drops 777 Points

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• Stocks plunged as the House of Representatives failed to approve the $700 billion the so-called bailout. The Dow lost 777 points or nearly seven percent while the Nasdaq fell nearly 200 points or nine percent. Stocks were showing weakness from the beginning of trading but when it became apparent the measure was not going to pass in the House the DJIA fell hundreds of points in a matter of minutes and by the end of the day it had surpassed its biggest one-day decline ever, set the day the market re-opened after the 9/11 attacks.
• Expect a day or two of a cool down in Washington as the administration scrambles for a solution that will pass in Congress. There is clearly a lack of leadership on the issue. Differing proposals are being offered in every which direction. The goal will be to pass a new deal by Thursday. They were close the first time around, but keep in mind that most legislators were hearing huge opposition from their constituents. Apparently citizens fail to realize how serious the issue has become. Maybe the drop in the Dow will change their minds.
• If you told me last summer that the price of a barrel of oil would fall by over $10 and stand at $96 I would have told you the Dow would probably be up 700 points. No such luck though, as concerns about the economy going into a prolonged slump could cause global energy demand to wane. Another bearish sign for oil is that prices at the pump continued to fall on Monday as the national average fell to $3.643. Prices may fall further as oil production ramps up in the Gulf following the recent hurricanes.
• Shares of Apple, Inc. (AAPL) hit fresh 52-week lows on Monday after analysts downgraded the stock due to slower consumer spending. Morgan Stanley analysts believe consumers will opt for the lower end of the computer market where Apple doesn't have much presence. Another analyst noted a survey of consumers indicated a big drop in the number intending to buy a Macintosh. Shares fell nearly $23 to close at $105.26.
• Mortgage giants Fannie Mae and Freddie Mac disclosed Monday they are facing a federal grand jury investigation into their accounting practices. The grand jury is investigating accounting, disclosure and corporate governance issues. The investigation focuses on activities beginning in 2007. Several years ago both companies were forced to re-state earnings results after regulators discovered irregularities at both companies. Those scandals led to the replacement of the CEO's of both companies.
• Look for a snap-back rally in stocks today as futures point to a higher market despite losses in markets across the globe. That being said credit markets are still in a major crisis. All eyes will remain on Wall Street as investors seek direction from the Hill. I suspect any snap-back will be short lived. The bottom line is that economy is wounded. We have yet to see the full impact of what has already transpired on Main Street. When we do you can bet that a bunker mentality will keep spending to a minimum. Even with a deal on credit, there will still be a price to pay. Companies will have to work extra hard to keep profits flowing. Should they fail, Wall Street can expect further losses.
• For those looking at individual stocks take a look at Avon Products (AVP). Shares are down since reporting a strong second quarter and with international sales providing a big boost, Goldman Sachs is out with a report suggesting that earnings estimates may be a bit low. After jumping to $45 per share on the strong performance, shares have settled below $40 yesterday. Concerns of a slowing economy not withstanding, AVP appears poised to do well with a direct sales model that cuts out the middle man. Cost cutting may very well win the battle during this crisis.

by The Freshman |  09/30/08  |  Stocks: AAPL, AVP,