STREET RETREATS FROM FANNIE, FREDDIE RALLY
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Market schizophrenia slammed stocks yesterday as investors quickly got over their joy from the rescue of Fannie Mae and Freddie Mac to focus instead on the next potential disaster.
News of failed negotiations between Lehman Brothers and Korean investors touched off a fresh round of financial fears, helping drive the Dow Jones industrial average down 280 points, almost wiping out the previous day’s gains.
Lehman shares tumbled to their lowest point since 1998. The stock dropped $6.36, or 45 percent, to close at $7.79.
Among other financial losers was insurance company American International Group, which tumbled 19 percent to $18.37 while Washington Mutual plummeted 20 percent.
The only silver lining was the continued decline in the price of crude, which yesterday fell $3.08 to $103.26 a barrel after Saudi Arabia’s oil minister said supplies are sufficient to meet demand. It suggests OPEC won’t move to tighten supply, which could drive prices higher.
But the drop in oil also served to weigh down energy stocks, with Exxon Mobil falling 4.6 percent to $73.26 and independent oil refiner Valero down 12 percent to $30.51.
The Standard & Poor’s 500 Index posted its biggest percentage drop since February 2007, dropping 43.28 points, or 3.41 percent, to end at 1,224.51. The Dow nearly wiped away its 290-point gain from Monday falling 2.4 percent to 11,230.73.
“I’m surprised the euphoria over Fannie/Freddie was so short-lived,” said Joseph LaVorgna, chief US economist at Deutsche Bank.