Markets Observed Heavy Blood Bath During - Oct 8, 2008

Tuesday, the US stock market ended sharply lower. Markets observed heavy blood bath during the trading session with S&P 500 ended 5 year low on weak outlook from Bank of America and cautious comments from Fed Chairman Ben Bernanke that ignored a Federal Reserve plan to improve liquidity in short-term corporate borrowing. Stocks were higher in the early trade on Fed''s plan to increase short-term corporate borrowing. The Fed chairman hinted for possible interest rate cut as worried that the economic downturn now on the move and may last longer. Lower rates can reduce the borrowing costs for businesses and consumers on a wide range of loans. These cheaper loans can increase economic activity.

Further, to bring down the cost of commercial and improve liquidity, the Fed announced about the formation of Commercial Paper Funding Facility (CPFF), which will provide a liquidity backstop for the strained commercial paper market. The Fed will purchase three month unsecured and asset backed commercial paper from the eligible issuers.

On the earnings front, the Bank of America preannounces third quarter earnings and gave a weak outlook about the economy.

Among the corporate news, the chip maker AMD announced about planning to spin off its manufacturing operations in a partnership with Abu Dhabi for cash infusion which is required by the company.

Further, Morgan Stanley announced that the investment the will close imminently, which it is receiving from Mitsubishi.

On the economic front, consumer credit fell $7.9 billion in August on a seasonally adjusted basis, as against the expected gain of $5.0 billion. This is the first month-over-month turn down after 1998.

The Dow Jones Industrial Average (DJIA) dropped by 508.39 points to close at 9,447.11. The NASDAQ Composite (RIXF) index decreased by 108.00 points to close at 1,754.01 and the S&P 500 (SPX) fell 60.66 points to close at 996.23.

Among the Dow’s 30 components, all ended in red mainly led by Bank of America, after the bank reported a 68% fall in its profits. It has also reduced its dividend and said it is selling at least $10 billion in new common stock to bolster its capital to offset rising loan losses.

A total of around 1.3 bn shares were traded on the NASDAQ, with declining stocks outpaced the advancing stocks by 5 to 1. On the New York Stock Exchange around 1.7bn shares traded for the day, with declining stocks outpaced the advancing stocks by 7 to 1.

Crude oil futures for the month of November delivery climbed $2.25 at $90.06 per barrel on New York Mercantile Exchange. The crude prices rebounded on Tuesday due to the speculation in the market about an OPEC output cut along with a concerted cut in interest rate by central banks to face a global financial crisis.

The gold for the month of December delivery raised for second consecutive day by $15.80 at $882.00 an ounce on the New York Mercantile Exchange. The gold prices went up on the speculation about a concerted cut in interest rate by central banks to face a global financial crisis.