On Monday August 8th the market got its first shot at reacting to the S&P's downgrade on U.S. debt. The 635 point drop was the markets 6th worst point loss ever. Europe's financial situation also contributed to the day's losses.
The blood bath spared no one. Even stocks like Proctor and Gamble were down, P&G sells goods that people buy whether the economy is doing well or not. Although Gold was up to about $1,710 gold stocks were down.
"Not only is the economy not growing as most would like, but there is a concern that fiscal and monetary authorities are powerless to do more for the economy," said Michael Pond, co-head of interest-rate strategy for British bank Barclays
On Tuesday August 9th the Dow Jones shot up 430 points, due to the Fed's announcement that it will keep interest rates at its record low level of 0.25% for at least 2 more years. According to the FOMC economic growth has been slower and household spending has flattened. The only strength has been seen in business investment. The Dow's 430 point ascent was its 11th-largest point gain ever.
On Wednesday August 10th the Dow Jones erased the gains from Tuesday closing down on 519 points. The Dow has now lost more than 2000 points in less than 3 weeks. These black swans are occurring too often. This type of activity may be here to stay at least for the coming weeks.
European debt problems caused the severe drops in the market. Although low interest rates are great for stocks, traders focused on the Feds view that the economy won't improve substantially by 2013.
Financial stocks were the big losers for the day. Investors are uncertain how much European debt problems may hurt American banks.
Investors are afraid; if European governments default on their bonds, this will take its toll on the European banks that own bonds. As a result that could start a domino effect that would hurt large U.S. banks.
What will the U.S government do now?
The U.S. may start another stimulus package and start buying treasuries this would add a little goose to the market. On Tuesday the Federal Open Market Committee did not mention it would start buying more treasuries. It may wait till the wild movement in stocks dies out. As of now the Dow futures are up in Asian markets at 10,800.00