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Dow Falls 777 as Market Reels From House Vote

29 September 2008

Author: Cindy Perman

Taken from: CNBC - Dow Falls 777 as Market Reels From House Vote

The House rejected the Wall Street bailout bill and the market screamed, selling off frantically until the Dow was left with its biggest one-day point drop ever.

"This is panic and ... fear run amok," Zachary Karabell, president of River Twice Research told CNBC. "Right now we are in a classic moment of a financial meltdown," he said.

"The mood is definitely the old expression, 'Fish or cut bait," said Matt Cheslock, a senior specialist at Cohen Specialists. "Everyone’s kind of upset with the political grandstanding that’s going on. We haven't solved any problems that we're in," he said.

The bill initially failed to get enough votes, sending the market into a tailspin, as congressmen and women huddled to try to shore up the votes to save it. To no avail: The bill was ultimately rejected, leaving the future of the bailout in question.

The Dow Jones Industrial Average ended down 7 percent, or 777.68 — its biggest one-day point drop in history — at 10365.45. The S&P 500 also logged its biggest one-day point drop, falling 106.59, or 8.8 percent, to 1106.42. The Nasdaq had its biggest one-day point decline since 2000, falling 199.61, or 9.1 percent, to 1983.73. The CBOE Volatility Index, widely viewed as the best gauge of fear in the market, surged 33 percent to a record 46.72. The VIX hasn't been above 40 in more than 10 years.

"The credit crisis has created a level of fear unseen since the 1987 stock market crash," Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group, told Reuters.

Volume was light, with 1.16 billion shares changing hands on the NYSE, amid a lack of a buy side. That left the Dow swinging 100 to 200 points — sometimes in a matter of seconds.

The Dow dropped more than 700 points when the House rejected the bill, then pared that back to about 500, before swinging to a 600-point decline as the closing bell was ringing. Still swinging in those final minutes after the bell, the Dow settled down nearly 800 points.

That quick 200-point paring in the Dow's loss earlier was likely due to the fact that the market was expecting another vote, Pimco fund manager Bill Gross told CNBC.

But lawmakers said there wouldn't be another vote today.

“I honestly don’t even know where we go from here,” said Dave Rovelli, managing director of equity trading at Canaccord Adams. “It’s impossible to quantify.”

“We were all in shock,” Rovelli said of the mood on the trading floor. “The problem is, out in the boondocks, people don’t realize what this means. When they can’t get a loan at the bank, then they’ll figure it out.”

"If there is no package, there will be a tremendous hole in credit markets. This must be passed," Gross said.

"We don't have a backup plan," Rovelli added.

"You hate to say it but 10000 seems like a nice, round number that we may need to get to before we get people actually willing to buy some stocks," Cheslock said.

All 30 Dow components finished lower. Among the top drags on the Dow: American Express shed 13 percent, Bank of America lost 12 percent and Intel skidded 10 percent as investors worried that the global slowdown will drag down tech spending.

The energy components, Chevron and ExxonMobil , dropped at least 7 percent as oil fell below $100 a barrel.

Investors took some encouragement — though quickly forgot about it — from news that there was a resolution on another troubled bank, Wachovia, that wasn't a federal bailout.

Citigroup is buying Wachovia's banking operationsin a deal facilitated by the FDIC,after engaging in a brief bidding war with Wells Fargo.