Wall Street plunged at the opening of trading Tuesday, propelling the Dow Jones industrials down about 300 points after an interest rate cut by the Federal Reserve failed to assuage investors fearing a recession in the United States.
U.S. markets joined stock exchanges around the world that have fallen precipitously in recent days amid concerns that a downturn might spread around the world. U.S. bonds were mixed, with investors seeking safer investments as stocks plummeted. The oil price, by contrast, fell amid expectations that a downturn would depress demand for energy.
The Fed’s decision to cut its federal funds rate to 3.50% and the discount rate, the interest it charges to lend directly to banks, came a week before the central bank’s regularly scheduled meeting, a sign that the Fed recognized the seriousness of the world financial situation. But there were already fears in the markets before the Fed move that an interest rate wouldn’t be enough to prevent a recession. The cut was the biggest one-day rate move by the Fed since it lowered rates by a full percentage point in December 1991, when the country was trying to emerge from recession.
In the first hour of trading, the Dow was down 293.70, or 2.43 percent, at 11,805.60. The Dow was last below 12,000 in March 2007. The broader Standard & Poor’s 500 index was off 32.49, or 2.45 percent, at 1,292.70, while the Nasdaq composite index fell 66.82, or 2.86 percent, to 2,273.20.
It was the first time the Fed altered the target federal funds rate between scheduled meetings since the markets reopened after the Sept. 11, 2001 terrorist attacks.
It’s been a black year so far for stocks. The SP 500 index, the broadest measure of the stock market, has suffered its worst annual start ever, giving up about 13 percent in just three weeks. The Dow is down about 12 percent since the beginning of the year, and the Nasdaq is down approximately 15 percent.
On the other side the government bond prices surged as stocks fell and investors fled to safer securities. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.53 percent from 3.63 percent late Friday.
Both Asian and European markets have also fallen seriously where the Asian market was hit harder. Japan’s Nikkei stock average closed down 5.65 percent — its biggest percentage drop in nearly a decade. The German’s DAX for instance fell to the level of mid 2007, yet higher than the levels of January 2007.
Did the crisis affect the major Internet players anyway?
Below is a quick outlook of some of the more important Internet players and how their stocks performed for today. Clearly everything was colored in red.
Company / Stock Symbol / Last Trade / Change / Mkt Cap
- Microsoft Corporation MSFT 32.05 -0.96 ( -2.91% ) 299.84B
- Google Inc. GOOG 590.14 -10.11 ( -1.68% ) 184.62B
- News Corporation NWS.A 18.59 -0.10 ( -0.54% ) 58.05B
- Time Warner Inc. TWX 15.07 -0.47 ( -3.02% ) 54.62B
- eBay Inc. EBAY 27.13 -1.20 ( -4.24% ) 36.68B
- Amazon.com, Inc. AMZN 77.62 -2.14 ( -2.68% ) 32.31B
- Yahoo! Inc. YHOO 20.02 -0.76 ( -3.66% ) 26.78B
- Baidu.com, Inc. (ADR) BIDU 270.40 -2.64 ( -0.97% ) 9.12B
- IAC/InterActiveCorp IACI 24.14 +0.02 ( 0.08% ) 6.85B
- SINA Corporation (USA) SINA 38.95 -0.26 ( -0.66% ) 2.13B
- Sohu.com Inc. SOHU 39.99 -2.06 ( -4.90% ) 1.49B
- CNET Networks, Inc. CNET 7.78 -0.38 ( -4.66% ) 1.18B
Alibaba.com Corp., yet another major Internet player, which is traded on the Honk Kong stock market, has today lost 8.91% from its market capitalization.
From all the companies we took a look at only IAC seems to be the winner for today (at the moment we checked them out) – having its stock price colored green.
The big loser could be Answers Corporation which got its stock smashed on Friday, dropping more than 23%. Answers’ plunge jeopardizes Lexico acquisition, which they were hoping to buy for $100M, a deal we have reported a few weeks ago. It is hard to believe that answers.com is attracting more than 34M unique visitors per month and the entire company is today worth less than $30M. The company once was over $140M worth when its stock was close to $18.
The venture capital market
Reporters went public today on the venture capital market released from PricewaterhouseCoopers and the National Venture Capital Association. Total venture funding for the year were up 10.8 percent to $29.4 billion, and up 11.5 percent for the fourth quarter of 2007 to $7 billion. That makes it the fourth straight quarter where VC deals were above the $7 billion mark, and the highest yearly total since 2001. 2007 was a year of steady gains for VC investing, the highest since the $40.6 billion invested in 2001 (and still well-below the $105 billion in 2000).
What about the new entrants from the web 2.0 age?
Facebook the most buzzed web 2.0 company seems to be rethinking the perfect time for their IPO and rumors are they are going to postpone it to at least 2009 or even 2010 if markets recover. Digg, yet another popular web site from the web 2.0 age, is trying to shop itself for months now at the $300M range but we hear no any news for potential acquisition of the social news site.
Despite all talks for possible recession in US and despite all huge losses the major banks in US have incurred, the web 2.0 deals appear to be more than ever before. For example only today [January 22, 2008] we have read about 10 deals at least where the average funding figures where close to $15M. Over the past 30 days, no matter we were in holiday season we have written down to report later more than 100 VC deals for web 2.0 companies, most of them start-up, and at least 20 acquisition and buy out deals with in the sector. Almost half of the deals reported on that particular day were acquisitions. Also today a major VC player has raised $577M late stage growth fund for. The web 2.0 market is going crazier from day to day and the peak seems not reached yet. Based on what we are witnessing the major credit and financial crisis in the states is not affecting the relatively small web 2.0 sector. All the VC activity within the sector gives no signals about crisis or any major slow down in the web 2.0 market, at least for now.