As Lehman Brothers struggled to raise capital, indexes gave back virtually all of Monday's bailout-fueled gains
Stocks fell Tuesday, virtually erasing the gains from a rally one day earlier prompted by the federal government's takeover of Freddie Mac (FRE) and Fannie Mae (FNM).
A main culprit was Lehman Brothers (LEH). Shares of the investment bank plunged 45% on worries it couldn't raise needed capital. An investment deal with a South Korean state-owned bank was reportedly in doubt.
Also, U.S. pending home sales continued to slide.
On Tuesday, the Dow Jones industrial average fell 280.01 points, or 2.43%, to 11,230.73, following Monday's 290-point rise. The broader S&P 500 index lost 43.28 points, or 3.41%, to 1,224.51. And the tech-heavy Nasdaq composite index dropped 59.95 points, or 2.64%, to 2,209.81.
On the New York Stock Exchange, 28 stocks lost ground for every four in positive territory. On the Nasdaq, the ratio was 23 to 5 negative.
Monday's rally came as the Freddie and Fannie takeover bolstered some investors' confidence by removing doubt about the survival of the two important U.S. mortgage financiers. The plan was announced by U.S. Treasury Secretary Henry Paulson on Sept. 7.
Some technical strategists, however, noted the weakness of Monday's rally and questioned how much investors' moods had really changed. Richard Dickson of Lowry's Report successfully predicted the market reaction. "Chances are [Monday's rally] will be best used as an opportunity for additional selling," he wrote.
Wall Street spent all of Tuesday's session closely watching shares of Lehman Brothers after Dow Jones reported Lehman has ended talks with South Korean government officials. They were negotiating a possible investment by state-run Korea Development Bank in the troubled investment bank. One official declined to say what conclusion had been reached, but another anonymously told Dow Jones that KDB would not be making a deal.
Also Tuesday, S&P Ratings Services placed its ratings on Lehman and all related entities on CreditWatch with negative implications. "We now believe that [Lehman] incurred a substantial net loss" in the third quarter, S&P said. It blamed the company's problems on "persisting difficult conditions in the investment-banking trading markets and write-downs from deteriorating market valuations of its mortgages and mortgage-related securities."
Oil prices fell on Tuesday. On the NYMEX, October crude oil slid $4.23 to $102.11 per barrel. Hurricane Ike weakened and forecasters believe it won't affect most oil production in the Gulf of Mexico. Also, the Saudi oil minister said the oil market is "well-balanced," suggesting the Organization of Petroleum Exporting Countries will not cut production. In economic news Tuesday, the National Association of Realtors said its index for pending sales of existing homes fell 3.2% to 86.5 in July, from 89.4 in June. The index is 6.8% below its level a year ago.
The data has been volatile lately, "as home sales bounce around what we deem to be the bottom," said Michelle Meyers of Lehman Brothers. Foreclosures and bargain hunters have spurred more sales. However, Meyers added: "The housing market is still very much out of balance with a huge excess of homes on the market for sale. We believe the overhang of vacant homes for sale needs to be cleared before home prices find a floor."
U.S. wholesale sales fell 0.3% in July, after surging 3% in June. Inventories rose 1.4% following a 0.9% increase in June.
The International Council of Shopping Centers said Tuesday its weekly chain store index fell 0.1% last week, after rising 0.1% the week before.
Also, Manpower's quarterly survey showed U.S. employment expectations fell to their lowest level since 2003. The index hit a level of 9, from 12 last quarter and 18 a year ago. "We are clearly in a softening period in the labor market that may be at recessionary levels," Manpower Chief Executive Jeff Joerres said. A level of 4 or 5 would be similar to past recessions, he said.
Among other stocks in the news Tuesday, Washington Mutual (WM) fell 20% Tuesday to 3.30, after S&P equity analysts slashed their price target for the stock from $4 to $2.
Wachovia (WB) named David Zwiener as the bank's new chief financial officer. Merrill Lynch analysts downgraded the bank's stock to underperform. Shares fell 14.5%.
American International Group (AIG) shares dropped 19.3% Tuesday. Reuters reported investors were afraid AIG's mortgage market exposure could prompt the giant insurer to seek new capital.
McDonald's (MCD) posted a 4.5% rise in U.S. same-store sales. Same-store sales in Europe rose 12%, and globally sales rose 8.5%.
Google (GOOG) was narrowly lower after Stifel Nicolaus analysts said the company can expect an antitrust challenge to its search deal with Yahoo (YHOO).
TD Ameritrade Holding (AMTD) was downgraded by Credit Suisse analysts from outperform to neutral.
Toll Brothers (TOL) was reported downgraded by analysts at Credit Suisse, part of a downgrade of the U.S. homebuilders industry from overweight to market weight.
Hewlett-Packard (HPQ) was upgraded from market perform to outperform by Bernstein analysts.
Evergreen Solar (ESLR) and other solar stocks dropped Tuesday, with the Associated Press attributing the declines to the plunge in oil prices and worries about falling 2009 prices and an oversupply of solar panels.
Korn/Ferry International (KFY) reported earnings of 36 cents per share, vs. 36 cents a year ago. Higher expenses offset an 11% jump in revenue.
H.B. Fuller (FUL) lowered its 2008 earnings guidance range, citing a rapid rise in raw material costs. Standard & Poor's equity analysts downgraded the stock from hold to sell.
After posting large gains on Monday, major European stock indexes were narrowly lower Tuesday. In London, the FTSE 100 index fell 0.56% to 5,415.60, following a 3.81% advance Monday. In Paris, the CAC 40 index, up 4.1% Monday, fell 1.08% to 4,293.34. Germany's DAX index rose 2.66% Monday, but was down 0.48% to 6,233.41 on Tuesday.
Major Asian indexes fell after Monday's gains. After jumping 3.4% on Monday, Japan's Nikkei 225 index dropped 1.77% to 12,400.65. In Hong Kong, the Hang Seng index lost 1.46% to 20,491.11, following a 4.32% advance Monday.
Treasury market
Treasury prices rallied amid more financial worries. The 10-year note rose 26/32 to 103-13/32 for a yield of 3.59%, while the 30-year bond soared 47/32 to 105-10/32 for a yield of 4.19%.
A main culprit was Lehman Brothers (LEH). Shares of the investment bank plunged 45% on worries it couldn't raise needed capital. An investment deal with a South Korean state-owned bank was reportedly in doubt.
Also, U.S. pending home sales continued to slide.
On Tuesday, the Dow Jones industrial average fell 280.01 points, or 2.43%, to 11,230.73, following Monday's 290-point rise. The broader S&P 500 index lost 43.28 points, or 3.41%, to 1,224.51. And the tech-heavy Nasdaq composite index dropped 59.95 points, or 2.64%, to 2,209.81.
On the New York Stock Exchange, 28 stocks lost ground for every four in positive territory. On the Nasdaq, the ratio was 23 to 5 negative.
Monday's rally came as the Freddie and Fannie takeover bolstered some investors' confidence by removing doubt about the survival of the two important U.S. mortgage financiers. The plan was announced by U.S. Treasury Secretary Henry Paulson on Sept. 7.
Some technical strategists, however, noted the weakness of Monday's rally and questioned how much investors' moods had really changed. Richard Dickson of Lowry's Report successfully predicted the market reaction. "Chances are [Monday's rally] will be best used as an opportunity for additional selling," he wrote.
Wall Street spent all of Tuesday's session closely watching shares of Lehman Brothers after Dow Jones reported Lehman has ended talks with South Korean government officials. They were negotiating a possible investment by state-run Korea Development Bank in the troubled investment bank. One official declined to say what conclusion had been reached, but another anonymously told Dow Jones that KDB would not be making a deal.
Also Tuesday, S&P Ratings Services placed its ratings on Lehman and all related entities on CreditWatch with negative implications. "We now believe that [Lehman] incurred a substantial net loss" in the third quarter, S&P said. It blamed the company's problems on "persisting difficult conditions in the investment-banking trading markets and write-downs from deteriorating market valuations of its mortgages and mortgage-related securities."
Oil prices fell on Tuesday. On the NYMEX, October crude oil slid $4.23 to $102.11 per barrel. Hurricane Ike weakened and forecasters believe it won't affect most oil production in the Gulf of Mexico. Also, the Saudi oil minister said the oil market is "well-balanced," suggesting the Organization of Petroleum Exporting Countries will not cut production. In economic news Tuesday, the National Association of Realtors said its index for pending sales of existing homes fell 3.2% to 86.5 in July, from 89.4 in June. The index is 6.8% below its level a year ago.
The data has been volatile lately, "as home sales bounce around what we deem to be the bottom," said Michelle Meyers of Lehman Brothers. Foreclosures and bargain hunters have spurred more sales. However, Meyers added: "The housing market is still very much out of balance with a huge excess of homes on the market for sale. We believe the overhang of vacant homes for sale needs to be cleared before home prices find a floor."
U.S. wholesale sales fell 0.3% in July, after surging 3% in June. Inventories rose 1.4% following a 0.9% increase in June.
The International Council of Shopping Centers said Tuesday its weekly chain store index fell 0.1% last week, after rising 0.1% the week before.
Also, Manpower's quarterly survey showed U.S. employment expectations fell to their lowest level since 2003. The index hit a level of 9, from 12 last quarter and 18 a year ago. "We are clearly in a softening period in the labor market that may be at recessionary levels," Manpower Chief Executive Jeff Joerres said. A level of 4 or 5 would be similar to past recessions, he said.
Among other stocks in the news Tuesday, Washington Mutual (WM) fell 20% Tuesday to 3.30, after S&P equity analysts slashed their price target for the stock from $4 to $2.
Wachovia (WB) named David Zwiener as the bank's new chief financial officer. Merrill Lynch analysts downgraded the bank's stock to underperform. Shares fell 14.5%.
American International Group (AIG) shares dropped 19.3% Tuesday. Reuters reported investors were afraid AIG's mortgage market exposure could prompt the giant insurer to seek new capital.
McDonald's (MCD) posted a 4.5% rise in U.S. same-store sales. Same-store sales in Europe rose 12%, and globally sales rose 8.5%.
Google (GOOG) was narrowly lower after Stifel Nicolaus analysts said the company can expect an antitrust challenge to its search deal with Yahoo (YHOO).
TD Ameritrade Holding (AMTD) was downgraded by Credit Suisse analysts from outperform to neutral.
Toll Brothers (TOL) was reported downgraded by analysts at Credit Suisse, part of a downgrade of the U.S. homebuilders industry from overweight to market weight.
Hewlett-Packard (HPQ) was upgraded from market perform to outperform by Bernstein analysts.
Evergreen Solar (ESLR) and other solar stocks dropped Tuesday, with the Associated Press attributing the declines to the plunge in oil prices and worries about falling 2009 prices and an oversupply of solar panels.
Korn/Ferry International (KFY) reported earnings of 36 cents per share, vs. 36 cents a year ago. Higher expenses offset an 11% jump in revenue.
H.B. Fuller (FUL) lowered its 2008 earnings guidance range, citing a rapid rise in raw material costs. Standard & Poor's equity analysts downgraded the stock from hold to sell.
After posting large gains on Monday, major European stock indexes were narrowly lower Tuesday. In London, the FTSE 100 index fell 0.56% to 5,415.60, following a 3.81% advance Monday. In Paris, the CAC 40 index, up 4.1% Monday, fell 1.08% to 4,293.34. Germany's DAX index rose 2.66% Monday, but was down 0.48% to 6,233.41 on Tuesday.
Major Asian indexes fell after Monday's gains. After jumping 3.4% on Monday, Japan's Nikkei 225 index dropped 1.77% to 12,400.65. In Hong Kong, the Hang Seng index lost 1.46% to 20,491.11, following a 4.32% advance Monday.
Treasury market
Treasury prices rallied amid more financial worries. The 10-year note rose 26/32 to 103-13/32 for a yield of 3.59%, while the 30-year bond soared 47/32 to 105-10/32 for a yield of 4.19%.
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