S&P 500 Loses -8%

29 09 2008

Stocks took a dramatic plunge on Monday afternoon after the government’s bailout plan — touted by its supporters as a balm for the current market stress — failed to pass the House of Representatives, setting off a fresh wave of anxious selling.

In yet another day that has shaken the embattled canyons of Wall Street, the Dow Jones industrials fell more than 725 points after it became clear that the legislation could not muster the support it needed to pass the House. points shortly before 3:45 p.m.

A more holistic measure of the American stock market, the Standard & Poor’s 500-stock index, was down by -8.79% at closing, after the House defeated the bill by a vote of 228-205. The Nasdaq was down -9.14% at closing.

The fear was most pronounced in the world’s credit markets, considered gauges of anxiety among investors. Yields on Treasuries plummeted after the House rejected the plan, with the one-month Treasury note yielding virtually zero.

Banks are charging enormous premiums for short-term financing; the difference between the cost of a three-month loan from a bank, and a three-month loan from the government, rose to the widest point since at least 1984. Other lending rates stayed high.

On Wall Street, the drops were sharp and swift, catching many investors and stock strategists on Wall Street by surprise. Many had expected the measure to be passed in the House, and lawmakers in Congress had suggested as much in comments earlier on Monday.

Instead, traders around the world turned to their television screens to see the votes opposed to the bill adding up, and eventually surpassing those in favor. The banal image broadcast on several television networks — a no-frills table of ‘yay’ and ‘nay’ votes — contrasted with the expressions of increasing concern on the faces of workers on the floor of the New York Stock Exchange.

“The bottom line is that everybody seems confused,” Ryan Detrick, a strategist at Schaeffer’s Investment Research, said just moments after the initial plunge. “When that happens, you get selling, you get panicky, you get selling.”

The sell-off reinforced the fear coursing through Wall Street as investors wondered, first, whether the bailout plan would pass Congress, and second, what would happen if it did not.


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