MARKET REPORT : Mortgage worries weigh on stocks
Posted on Tuesday, August 19, 2008
NEW YORK — Wall Street retreated Monday after Fannie Mae and Freddie Mac fell to their lowest levels in nearly 20 years on concerns that the government might need to bail out the mortgage financiers.
Weakness in the overall financial sector sent the Dow Jones industrial average down 180. 51, or 1. 55 percent, to 11, 479. 39. The Dow had been down about 225 at its low of the session.
Investors again were uneasy about the health of financial companies after media reports of further problems in the sector. The weekly business publication Barron’s said the U. S. Treasury might have to bail out government-chartered Fannie and Freddie, which, the publication noted, would likely wipe out shareholders’ equity in the companies.
Meanwhile, The Wall Street Journal, citing unidentified sources, reported that Lehman Brothers Holdings Inc. might surprise Wall Street with weaker-than-expected third-quarter results.
The continuing bad news about financials wasn’t a surprise, but it nonetheless depressed a market that is hoping for concrete signs that banks and brokerages can put the yearold credit crisis behind them and return to significant profit growth.
Todd Leone, managing director of equity trading at Cowen & Co., said the worries about Fannie and Freddie dominated market sentiment in an otherwise light day.
“It’ll be one of the slowest days of the year, and I think it just kind of fed into itself,” he said, referring to the effects of very light volume and the unease over the mortgage companies.
Broader stock indicators also declined Monday. The Standard & Poor’s 500 index fell 19. 60, or 1. 51 percent, to 1, 278. 60, and the Nasdaq composite index fell 35. 54, or 1. 45 percent, to 2, 416. 98.
The Russell 2000 index of smaller companies fell 11. 40, or 1. 51 percent, to 741. 97.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to a very light 3. 75 billion shares.
Last week, the Dow finished lower, but the S&P and the Nasdaq composite index ended higher, with financial sector problems again helping to bring stocks down.
Oil prices declined slightly after briefly jumping above $ 115 per barrel as Tropical Storm Fay approached Florida, but appeared unlikely to disrupt installations in the Gulf of Mexico. Light, sweet crude fell 90 cents to settle at $ 112. 87 a barrel on the New York Mercantile Exchange, after rising as high as $ 115. 35.
Bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3. 82 percent from 3. 84 percent late Friday.
On Monday, the dollar was mixed against other major currencies, while gold prices rose.
Overseas, Japan’s Nikkei stock average rose 1. 12 percent. Britain’s FTSE 100 fell 0. 08 percent, Germany’s DAX index fell 0. 20 percent, and France’s CAC-40 fell 0. 11 percent.
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