Overdose on a role

András Cserháti
Senior Product Manager

The “national gallops” are not over yet: with the rally that began in early March, most equity markets exceeded their 200-day moving average in the last third of May, and even stepped up their earlier pace to start soaring. No small achievement in a post-Lehman Brothers, post-General Motors environment, but while the former made huge waves on the financial markets, the latter appears to have made little more than a few ripples – from which we should be able to escape dry-footed. What accounts for the difference between the two events? The fact that the power of surprise had gone, for one, and therefore the negative effects – or some of them at least – had already been priced in by the market. The bank-ruptcy of the US car giant, founded in 1908 and once the world’s biggest auto manufacturer, had be-come inevitable – the question was no longer if, but when it would happen. That “when” was June 1, and although GM finally filed for bankruptcy protection, the financial independence of the 100-year-old company, regarded as a symbol of US industrial might, came to an end, which also meant its automatic exclusion from the Dow Jones Industrial Average (DJIA) index, of which it had been a key component since 1915.

Three replacements took place in the index in 2008. The food company Altria Group Inc. and the industrial equipment manufacturer Honeywell International Inc. were replaced by Bank of America Corp. and the oil company Chevron Corp., and last September the food company Kraft Foods replaced the insurer American International Group, Inc. (AIG), which then accepted the USD 85bn government rescue package offered, the amount of which has almost doubled since then. The stock-exchange authority has said that, in addition to General Motors, Citigroup was also re-moved, on June 8, from the index comprising the 30 leading industrial companies of the New York stock exchange. While the place of the former was taken by Cisco Systems, the latter was replaced by Travelers Companies. Unlike GM, Citigroup was removed from the leading stock-exchange index because it is in the middle of a major restructuring program combined with substantial government co-ownership, which may help the banking giant to get back on steady feet.

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