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North America

December 2008

  • Citigroup recued by the government.
  • Federal Reserve announces a new $800 billion stimulus package.
  • Consumer prices experience steepest monthly drop since the 1940s.

The market optimism that accompanied Barack Obama’s historic presidential election win in early November proved to be rather short-lived. Stock markets experienced extreme highs and lows and the S&P 500 index finished the month down 7.2%, in dollar terms.

The declines began as investors contemplated the president-elect’s mammoth task of rejuvinating the US economy and the potential for a deep recession. Markets, though, did stage a minor rebound after Obama confirmed that he did not “underestimate the enormity of the task that lies ahead.”

But another drop occurred mid-month, and Wall Street reached its lowest level in more than five years. Once again, gloomy economic data were to blame. October consumer prices fell 1% on the month before, marking the biggest drop in 61 years and reinforcing fears of a rapid slowdown. Financial shares struggled as investors worried about the effects the contracting economy would have on the sector.

Banking giant Citigroup reached new lows as the firm announced it was shedding 53,000 more jobs. Its shares lost almost 40% of their value over the course of the month. But it could have been much worse had the government not intervened, agreeing to insure $306 billion in toxic assets owned by the beleaguered bank.

The government’s rescue of Citigroup provided a boost to investor sentiment, which was further buoyed by news that the Federal Reserve plans to inject another $800 billion into the US economy in an effort to stabilise the financial system. Around $600 billion will be used to buy up mortgage-backed securities, with the remaining money earmarked for measures designed to unfreeze the consumer credit market.

 

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Scottish Widows Investment Partnership Limited (SWIP) is registered in England and Wales, Company No. 794936. Registered Office is at 10 Fleet Place, London EC4M 7RH. Tel: 0131 655 8500.
SWIP is authorised and regulated by the Financial Services Authority and is entered on their register under number 193707 (www.fsa.gov.uk).