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Big Three Bailout, Weak Economic News Sets Markets See-Sawing But Closing on a High

4 December 2008 - Features - Editor

With a stream of bad news, tempered by tidbits of good news, flowing to stock markets and resulting in volatile intraday trading, U.S. stocks nevertheless closed slightly higher on Wednesday. The Dow Jones industrial average rose 2 percent, Standard & Poor’s 500 gained 2.6 percent and the Nasdaq composite index closed 2.9 percent higher. While historically a stock rally despite bad news is one of the characteristics of the market bottoming out, analysts are divided as to whether this is the case, with some suggesting that it is, at the very least, an indication that the market is stabilizing.

Investors were encouraged by the United Auto Workers union announcement that it is prepared to work along with beleaguered U.S. automakers on changes in their labor contract with the objective of securing federal loans. This was announced by UAW president Ron Gettelfinger following his meeting with union officials from GM, Ford and Chrysler manufacturing plants. With GM revealing that without federal assistance it will run out of money before the end of the year, and Chrysler saying it won’t last past the first quarter of 2009 without aid, it is in the best interests of union members for UAW to cooperate with the Big Three automakers to secure a bailout. The Big Three CEOs presented revised plans to Congress on Tuesday setting out how they would use federal loans to get out of the red. The CEOs, along with Gettelfinger, will be attending Senate and House hearings on Thursday and Friday. Gettelfinger noted that even if UAW members worked for no pay, it would not save the struggling automakers. Clearly, only a Big Three Bailout is likely to save the day.

Bad news certainly outweighed the good on Wednesday. However, some analysts are of the opinion that because the market is expecting bad news, it will handle it better. Investors will soon find out if this is a valid observation, as the November sales reports from U.S. chain stores for Black Friday and the Thanksgiving Weekend are due Thursday, and although shoppers turned out in their droves for discounted goods, dollar spend per shopper is expected to be lower than last year. Moreover, Friday will see the release of the national employment report, which is likely to be dismal, with payroll processing firm ADP revealing that private sector employers cut 250,000 jobs in November, as opposed to the 205,000 economists had predicted for the month. Furthermore, analysts had forecast a November reading of 42 for the service sector, but the actual figure fell from 44.4 in October to 37.3 for November, and the latest Federal Reserve Beige Book confirmed what analysts had been expecting by showing a decline in all twelve of its districts.

There’s no doubt that stock market players need nerves of steel to survive the ongoing volatility of markets that react strongly to each morsel of good or bad news.

 


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