RTGAM






Things were going quite badly for the stock market until that final hour of trading on Wednesday. Then, things got a whole lot worse.


Could it be that investors, seeing stocks like Citigroup Inc. down by double digits, threw up their arms and ran for it? Or was there something in the release of the minutes of the Federal Reserve's October monetary policy meeting - released at 2 p.m. (ET) - that freaked people out?


Those minutes heavily hinted that more rate cuts will come, even with the key rate down to just 1 per cent. But the reasons why those cuts are necessary could be scaring a market that is already on edge.


"The crux of the report is clearly that the FOMC has unambiguously lowered its outlook for the U.S. economic growth and inflation, while increasing its forecast for the unemployment rate," Millan Mulraine, economics strategist at TD Securities, said in a note.


Now the Fed believes the U.S. economy will contract through the first half of 2009, with growth throughout the year ranging between -0.2 per cent and +1.1 per cent, far worse than an earlier projection. The Fed also believes that the unemployment rate will rise as high as 7.6 per cent in 2009, also worse than an earlier projection.


The stock market does not take kindly to this downward ratcheting. The Dow Jones industrial average closed at 7997.28, down 427.47, or 5.1 per cent - its lowest close in five-and-a-half years after obliterating its previous recent low on Oct. 27. The broader S&P 500 closed at 806.58, down 52.54 points, or 6.1 per cent - also a new low.


Some of the big declines were astonishing, particularly among financials. Citigroup Inc. fell 23.4 per cent, Bank of America Corp. fell 14 per cent and JPMorgan Chase & Co. fell 11.4 per cent. General Electric Co., which has considerable exposure to the financial markets through GE Capital, fell 10 per cent. Even Warren Buffett's Berkshire Hathaway Inc. fell 12.1 per cent, its biggest one-day decline in 23 years.


In Canada, the S&P/TSX composite index closed at 8490.56, down 345.17 points, or 3.9 per cent - its lowest close in more than four years. Royal Bank of Canada fell 5.4 per cent, Bank of Montreal fell 6.2 per cent and Manulife Financial Corp. fell 6.1 per cent.


November is shaping up to be a lousy month, no small feat given the carnage in September and October. So far, the Dow is down 14.2 per cent this month, the S&P 500 is down 16.7 per cent and the S&P/TSX composite index is down 13 per cent. Don't annualize that, please.

Copyright 2001 The Globe and Mail