Dow Drops Over 450 Points After Passage of Bailout!
I’m not even going to pretend that I understand the stock market but it does seem a little counter intuitive that the stock market saw a massive drop after the bailout was passed.
Now take a look at this and pay attention to what time it was at the highpoint before stocks started to fall (upper left-hand corner):
It was around 1:20 when the stock started to fall. Guess what time the bailout passed? Yep, you guessed it, right around 1:20. This means that from around 1:20 to close at 4:00, the Dow dropped over 450 points.
This leaves some questions for me:
- What made the Dow go up almost 300 points before the bailout passed? It seems to not be the bailout since its passage seemed to have sent it into a downward spiral.
- Was the downward spiral just the marketplace correcting itself? Were people betting on it not passing and had to change plans after it passed
- Will this downward spiral continue on Monday? If that happens, why in the world did we even bother with this bailout?
- Will bailout supporters use this drop as evidence to support the passage of the bailout? By this I mean will they say that the drop would have been much worse if it hadn’t passed.
Once again, I’m not an economist by any means, I’m just looking at what the numbers say and trying to make sense of it all. if you can answer any of these questions, please do so in the comments.
The market went up in the morning anticipating the bailout. Then there was profit taking. Then the slippery slope continued down.
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This bill had nothing to do with the stock market. We did not wish it to pass to correct any of the turmoil in the stock market. That will continue has we are in a recession — money chases performance.
More important to understand, is that the stock market as viewed through those indicators (the DOW, the S &P 500, etc) is forward looking — in other words, its the drop from 14,000 to 10,000 that speaks to our current conditions. The market has been pricing this in since then.
This bill was meant to address a lack of short-term credit in the banking system. It intends to achieve this jump-start of lending, by freeing-up bank balance sheets of banks, through the purchase of their troubled assets. This ought to leave them with capital to lend (that is how the plan goes, anyway).
In short, it was meant to address the more mysterious “credit market” which isn’t an actual market in the same sense as the stock market — its an umbrella term used to describe transactions involving debt, Commercial Paper, Credit Default Swaps, certain kinds of derivatives and of course all the varying forms of loan.
The stock market — as all money — chases performance, in the hands of some investor. When they know the economy going into recession and performance will be poor across sectors, investors seek performance elsewhere, and in other markets.
[...] off my previous post from Friday, the Dow has now fallen a total of 825 points since the passage of the [...]
[...] close means that the Dow has dropped roughly 2,330 points since the House passed the Bailout at 1:20 on Friday, October 3rd (look at this graph for the starting number I’m using). Basically, the Dow has dropped over [...]