- The Washington Times - Tuesday, December 30, 2008

UPDATED:

Wall Street rallied Tuesday, ignoring a report saying consumer confidence fell to a record low this month and focusing on the Treasury Department’s decision to lend $5 billion to the financial arm of General Motors Corp. and what it might mean for future consumer buying.

In the next-to-last trading day of the year, all of the major indexes rose by more than 1 percent, with the Dow up more than 180 points. The markets will be closed Thursday for New Year’s Day.

At the close, the Dow Jones Industrial Average jumped 184.46 points, or 2.17 percent, to 8668.39. The tech-heavy Nasdaq soared 40.38, or 2.67 percent, to 1550.70. The broader Standard & Poor’s 500 climbed 21.21, or 2.44 percent, to 890.63.

The market’s apparent focus on the federal loan to GMAC Financial Services LLC, which is a look to the future, overshadowed a report by the Conference Board showing that its Consumer Confidence Index plunged to 38 in December, a drop from 44.7 in November.

A Briefing.com survey of economists said they were expecting the index to rise to 45.5.

The worsening job market, reflected by the 26-year high in the number of Americans applying for first-time unemployment benefits for the week ended Dec. 20, a 6.7 percent unemployment rate and the unwillingness of consumers to spend money in the midst of a deepening recession seemed to far outweigh the optimism of those economists surveyed.

Consumer spending accounts for about two-thirds of U.S. economic activity, and the confidence level of American consumers is significant because it determines their willingness to open their wallets.

A Present Situation Index, which is separate from the Consumer Confidence Index, dropped to 29.4 this month from 42.3 in November, near levels that were reached during the 1990-91 recession. The index measures how people feel about employment opportunities and business conditions.

The Conference Board is a business research group that is based in New York and also publishes a monthly report on leading economic indicators.

In other news indicating a worsening recession, the Standard & Poor’s/Case-Shiller housing index showed that home prices dropped 18 percent in October from October 2007, the sharpest decline since the 20-city index started in 2000.

The older 10-city index plummeted 19.1 percent, the biggest drop in its 21-year history. The 20-city index plunged more than 23.4 percent from what it was in July 2006. Taken together, both indexes show the lowest level for home prices since March 2004.

The money for GMAC, the lending arm of GM, is to come from the $700 billion earmarked for rescuing the nation’s banks. Analysts have said that GMAC’s failure to get the loan may have pushed it into bankruptcy. Such a move would have been a major impediment to GM’s survival.

In a statement, GMAC said it “intends to act quickly to resume automotive lending to a broader spectrum of customers.”

That could mean more people would be eligible to borrow money from GMAC in order to buy new GM cars, a boost for the ailing automaker.

The Treasury also said that it will lend up to another $1 billion to GM so it can buy additional equity in GMAC. The money is in addition to the $17.4 billion that the federal government said it would lend to GM and Chrysler LLC.

The November Consumer Confidence Index was about half of what it was a year earlier and was close to the 43.2 reading of December 1974, when the economy had sunk into recession because of the Arab oil embargo that followed the 1973 October war in which Egypt and Syria launched a surprise attack against Israel.

In the current conflict between Israel and neighboring Gaza, the price for light sweet crude oil spiked to more than $42 a barrel Monday, the first trading day since the Israeli air assault began Saturday. The price hovered around $39 on Tuesday on the New York Mercantile Exchange.

Investor concerns that the Gaza war will disrupt oil supplies from the Middle East seemed to have evaporated. Lower oil demand because of the worldwide recession seemed to take precedence over those fears.

Light volume again was expected because of the four-day New Year’s holiday week.

In Europe, Britain’s Financial Times Stock Index 100 rose 0.97 percent, Germany’s DAX increased 1.54 percent and France’s CAC-40 climbed 0.72 percent. Japan’s Nikkei stock average went up 1.28 percent.

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.

 

Click to Read More and View Comments

Click to Hide