Chicago traders react to market volatility

October 24, 2008 6:03:49 PM PDT
Stocks finished the day lower but the damage was not as bad as it could have been.At the end of trading, the Dow lost 312 points to close at 8,378.

The NASDAQ lost 51 points to close at 1,552.

The near 500 point plummet in the opening minutes Friday morning was part of the expected aftershock on Wall Street.

Increasingly grim news from overseas shook up the already fragile world markets.

The selloffs started in Japan and by the time the fears of a global recession reached the US the Dow futures market plunged, tripping a circuit breaker freezing all trades.

"The markets have these kind of built in trip points so the emotion that tends to takeover can be dissipated without damaging the market overall," said Dan Arnall, ABC News Business Unit.

The circuit breaker goes into effect when the markets are open is 1100 points, something that's happened only once in 1997.

What helped drive US stocks down was news that Britain's economy shrank in the third quarter, confirming that country is on the brink of a recession.

In Chicago, traders are riding the wave of the highs and the lows.

The day began with a dismal outlook on the economy. But the Dow's dive took began to climb late in the day.

"We're still going to be down on the day, but the nice thing is, it's not as scary as it was," said options trader Joe Kinahan.

Kinahan is the chief derivatives strategist for Think or Swim and a member of the Chicago Board Options Exchange. He finds some optimism in end of the day rally.

"I'm starting to feel we're nearing the bottom. Overnight we were near the limit on futures, but a little bit after the open, they rallied back. It's a very common pattern when you get near the bottom," said Kinahan.

Commodities traders left the Board of Trade after another frantic day.

"We've seen all types of markets, but no one has ever seen a stock market like this in our lifetime," said Lee Stern, commodities trader.

Stern holds one of the oldest memberships to the Board of Trade, dating back to 1948.

He believes the volatility of stocks will level out creating opportunities in the long term.

"The good stocks will be back. The bad stocks, goobye," said Stern.

So where is this bottom? When will we hit bottom? Some of the experts ABC7 spoke with Friday say there are a couple things that might help us start to rally. One is the presidential elections. People want to know who is going to be in office, what the new administration will do and what's going on with the federal real estate and the supposed bailout of the country's financial institutions.

Around the world

Stock markets around the world plummeted Friday and oil prices plunged to their lowest in more than a year. Even gold, the traditional safe haven in times of panic, fell sharply.

The common denominator was growing fears that governments, central banks and finance ministers seem powerless to stop the deepening of a global recession that will slam corporate earnings and lead to deep job losses around the world.

The Dow Jones industrial average dropped more than 420 points in early afternoon trading. Before the open of New York trading, Dow futures had dropped 550 points, triggering a temporary trading halt in stock futures contracts in an effort to slow the decline.

"This is beyond volatile: It is chaotic," Carl Weinberg, chief economist at High Frequency Economics wrote in note to clients. "This is the kind of day when the central banks step into the market with an 'unexpected' interest rate move to calm things down."

Treasury Secretary Henry Paulson is monitoring the markets and staying in close touch with market participants, a spokeswoman said.

Oil fell sharply and traded near $63 a barrel amid weakening global demand for crude -- despite a decision by the OPEC cartel to cut production quotas by 1.5 million barrels a day from next month.

The dollar plunged below 93 yen, a 13-year low. Gold fell as low as $681 an ounce, its lowest since January last year.

It was a black Friday overseas. Japan's Nikkei stock average dropped 9.6 percent. Germany's benchmark DAX index plunged as much as 10.8 percent, France's CAC40 slid 10 percent and Britain's FTSE 100 shed 8.7 percent. Stocks in Hong Kong fell 8.3 percent.

Russian stocks fell sharply, the two main exchanges shut early and won't resume trading until Tuesday.

"We are getting used to wild swings in the markets, but today's moves verge on the bizarre," said Julian Jessop, chief international economist at Capital Economics.

The only good news was the 5.5 percent increase in September existing home sales. Median home prices, however, dropped to $191,600, down 9 percent from a year ago.

The U.K.'s third quarter gross domestic product fell 0.5 percent, with the steepest decrease in 18 years putting the country on the brink of recession. Shares of Japan's Sony sank more than 14 percent when it slashed its earnings forecast for the fiscal year. In Germany, Daimler's stock dropped 11.4 percent in morning trading; it reported lower third-quarter earnings and abandoned its 2008 profit and revenue guidance.

Emerging market economies and currencies are coming under extreme pressure. Investors are pulling money out of countries in Eastern Europe, Latin America and Asia on fears vulnerable countries will not only be hit hard by the financial crisis but may also default on debt.

Hong Kong's Hang Seng index fell 8.3 percent and markets in India, Thailand, Indonesia and the Philippines were also down sharply.

Brazilian stocks slumped for the fourth straight day, with the Ibovespa index down more than 8 percent in early afternoon. Mexico's benchmark index was down 5 percent.

"Periods of panic punctuated by occasional calm appears to be the manner of things for now," said Daragh Maher, a strategist at Calyon Corporate and Investment Bank in London.

Investors around the world seemingly have become more convinced the global economy is on the brink of a long and painful recession, if it's not already in one.

Over the past few weeks, governments have taken unprecedented steps to thaw frozen credit markets and avert the downturn. But while there are signs that credit markets are beginning to thaw -- rates banks charge each other for short-term loans have been falling in recent days -- the outlook from companies reporting earnings are almost universally cautious about their prospects going forward.

That means companies will be reluctant to buy new equipment or hire new workers. U.S. unemployment claims, already well into recession territory, are rising even faster than expected. Economists warn the worst is yet to come.

On Thursday, the government said new applications for unemployment insurance rose 15,000 last week to a seasonally adjusted 478,000, above analysts' estimates of 470,000. Jobless claims above 400,000 are considered a sign of recession.

Goldman Sachs, Chrysler and Xerox all announced they were cutting workers by the thousands, adding to the woes of an economy beset by tighter credit and wobbly banks. Chrysler said it would cut about 5,000 of its 18,500 white-collar work force.

PNC Financial Services said it is acquiring National City bank for $5.8 billion and planned to receive $7.7 billion in capital from the federal government as part of its $700 billion financial rescue plan.

The Commerce Department will release its first estimate of third-quarter economic performance Oct. 30, and Wall Street analysts project it will show the economy contracted by 0.5 percent, according to Thomson/IFR.

Many economists expect the decline to continue into the current quarter and the first three months of 2009, if not longer. The classic definition of a recession is at least two consecutive quarters of negative growth.

The Standard & Poor's 500 was down 33.29, or 3.6 percent, to 874.82. Sam Stovall, S&P's chief investment strategist, put a 700 target on the index, saying S&P's equity analysts expect operating results for the 500 large companies to decline 10 percent in 2008.

----

The Associated Press contributed to this report.


Load Comments