Wall Street Rollercoaster: Stocks rally day after record-setting drop

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• The roller coaster ride continues as the Dow rallied to a 485 point gain, its third highest point gain ever. The Nasdaq rallied 98 points or nearly five percent. This a day after the crushing losses in the wake of Congress failing to pass the proposed bailout. Hope springs eternal though and investors appeared to be strengthened by moves in Congress that appear to make the deal likely to pass in a revote. The credit markets continue to show stress as a key rate banks charge to lend to one another, LIBOR, increased once again. Such a state tightens credit threatening to ripple through the entire economy.
• The S&P/Case-Shiller 20-city housing index dropped a record 16.3 percent in July from the year-ago period. No city saw an annual gain for the month of July for the fourth straight month. Las Vegas, Phoenix and Miami saw the largest declines in prices. David M. Blitzer, chairman of the index committee at S&P said that there's no evidence of a bottom.
• Sheila Blair, Chairman of the Federal Deposit Insurance Corporation said on Tuesday that a temporary increase of government insurance on bank deposits would help alleviate a "crisis of confidence." Several large banks have seen large amounts of withdrawals as concern about the health of the financial industry increases. Small businesses, the engine of the economy, often have deposits in excess of current limits. Insurance would be paid back over time by industry assessments.
• Citing the mistaken routing of trades from another exchange, the Nasdaq stock market canceled a block of transactions in Google stock following a confusing drop in price late in the day. Shares had fallen about 10 percent to $341 but traders were wondering why as there was no news to account for the sudden drop. The trades executed between 3:57 and 4:02 were cancelled and the stock's price was reset to $400.52. If you are trading this market make sure you are diligent when placing trades. Market orders are particularly vulnerable to manipulation by brokers. Buyer beware.
• Oil prices moved over $101 yesterday with the strong moves in stocks. The bulls are of the belief that the US economy will avoid a deep recession. More importantly they are convinced that OPEC will defend the $100 mark by tightening supply. Don't bet on it! It is very difficult to defend high prices in a period of deflation. Members will cheat on production to keep dollars flowing. If supply is constrained at such levels behavior will be very difficult to control. Russia will play a big role in such a dynamic as they are desperate for economic benefits of oil.
  If supply drops hard as a result of artificial caps on production, Russia is very likely to do everything in its power to steal business from the Middle East. Count on it.
• Employers are cutting jobs in a major way. Employment consulting firm, Challenger Gray is out with a report stating that employers announced plans to cut 95,000 jobs in September an increase the 88,000 cut in August. Third quarter job losses are estimated to be 287,000. The trend is going the wrong way here. On Friday we get the monthly jobs number from the Labor Department. If the bailout deal passes attention will quickly turn to the economy and the strength or lack thereof.
• Wal-Mart (WMT) is not taking the slowing economy sitting down. Today the company announced that it is reducing pricing for the holiday season. Specifically they are dropping prices on 10 popular toys, including Barbie and Hot Wheels, by $10. Will it be enough to induce buying at a time of belt tightening? We will only know after the fact. What we do know is that inflation is very unlikely during times like these.

by The Freshman |  10/01/08  |  Stocks: WMT,