Futures indices on Wall Street indicate that at the start of today’s trading, stock prices could fall as the rescue of AIG has not alleviated all investor fears regarding the financial sector.
The Dow Jones futures index is currently down 31, and the Nasdaq index is down 11.75 points. The S&P futures index is down 6.5 points, but is above fair value, a mathematical formula that determines prices taking into account interest rates, dividends, and the expiration date of the futures contract. U.S. authorities decided last night to approve an emergency loan of $85 billion to American International Group to save the world’s largest bond insurer from bankruptcy. However, no one is sure that this is enough, and investors continue to wonder which bank will face escalating problems next.
"The market is practically in the same situation as before the AIG rescue. I expect a nervous trading day today as everyone is wondering who the next victim will be, how the problem will be resolved, and whether a domino effect will follow," says Peter Cardillo, an economist at Avalon Partners. Ahead of the opening of Wall Street, the price of AIG shares fell 20 percent, as the takeover of about 80 percent of AIG’s shares by U.S. authorities, which is part of last night’s loan arrangement, means the dilution of other shareholders.
