GOOD HOUSING NEWS CAN’T PROP UP MARTS
Despite a glimmer of good housing news in an otherwise decimated real-estate market, stocks continued their wild ride yesterday with the Dow falling over 240 points on renewed fears about financial companies.
The Dow Jones industrials ended down 241.81 points, or 2.1 percent, to close at 11,386.25 on very light volume. The walloping, which affected all 30 companies in the index, erased all of the gains made in Friday’s rally.
Insurance behemoth AIG fell 5.5 percent after credit-ratings agency Fitch warned of a possible downgrade and a Credit Suisse analyst predicted the company would post a $2.4 billion third-quarter loss.
JPMorgan also took a hit, falling 4.1 percent after saying that the $1.2 billion in shares of Fannie Mae and Freddie Mac it owns have probably lost half of their value this quarter. The news, combined with continued nervousness in the wake of the weekend failure of Topeka, Kansas-based Columbian Bank and Trust – the ninth federally-regulated bank to shut down this year – pounded financial stocks.
Some investment strategists were calling a market bottom last week, but persistent bad news from companies connected to the housing crisis is overshadowing any optimism on Wall Street.
Even after yesterday’s decline, the Dow is up only 4 percent from its July 15 low and down 20 percent from October’s high.
The National Association of Realtors said yesterday that existing home sales climbed a greater-than-expected 3.1 percent in July on a median price decline of 7 percent. However, the surprise good news was offset by housing inventories, which rose to record levels – suggesting that home prices have much further to fall.
“Over the last two weeks, our user base of over 1,000 institutional sell-side professionals have been clearly indicating to their buy-side clients that they felt the rebound in financials was over,” said Randy Cass, CEO of First Coverage, which surveys research reports and other stock recommendations from brokerage firms.
“What’s more, they are continuing to state that they are more bearish on the overall market right now than they have been at any time in the last five months.”
Another bearish sign came from Morgan Stanley yesterday, which cut its year-end forecast for the S&P 500 by 100 points to 1,300 on concern banks will report more credit-related writedowns and the global economic slowdown will curb profits at technology and industrial companies.
“Trying to guess when the last shoe has dropped is going to be a difficult way of making money,” Jeffrey Coons, co-director of research at Manning & Napier Advisors told Bloomberg News yesterday.