Tuesday’s Market Recap: Lehman Drags Stocks And Dollar Down

Stocks took a huge plunge today because of stability concerns at Lehman Brothers Holdings Inc. (LEH). Lehman Brothers declined 44.95% in intraday trading due to investors’ fears that the company is having trouble discovering new sources of capital, and the potential investment from Korea’s Development Bank appeared to be falling through. The news pushed down Wall Street and even pushed the Dollar down against the Yen and against the Euro early in the trading session, but vs. the Euro, the Dollar regained ground later on in the session.

The Dow Jones Industrial Average (^DJI) fell 280.01 points or 2.43% to close the day at 11,230.73. Both the Nasdaq and S&P500 had similar performances today. The Nasdaq (^IXIC) tumbled 2.64%, or 59.95 points to close the day at 2,209.81. The S&P500 (^GSPC) closed at 1,224.51, falling 43.28 points or 3.41%. The Dollar is currently trading at 0.7075 vs. the Euro, pulling back up from earlier in today’s session. Vs. the Yen, The Dollar slide to 108.07. The 10 year Treasury fell today to 3.5960%, falling 188 basis points. Gold fell 2.19% or $17.50 today to settle at $787.10 per ounce falling for the seventh straight trading session.

Crude Oil fell $3.93 or 3.70% to $102.41 a barrel, falling below $104 for the first time since April, as Hurricane Ike is expected to miss the oil installations on the Gulf Coast. OPEC’s president announced that they will continue production at current levels, signifying that most members could accept prices at/or above $100 a barrel.

The National Association of Realtors announced the pending sales index for existing homes in July fell to a seasonally adjusted reading of 86.5, falling 3.2% from June’s reading of 89.4, and more than 6.8% from July of 2007. Analysts anticipated the reading to fall to 88.6. Pending sales occur when a buyer accepts an offer but has not yet closed the deal. On average, there is a one to two month window before a sale is finalized. It is believed that total home sales in 2008 will fall to 5 million, down 11% from 2007, because of tightened lending controls on mortgages. It will be interesting to see if home sales pick up during the second half of the year with the government takeover of Fannie Mae (FNM) and Freddie Mac (FRE) and the anticipated drop in mortgage rates, but many analysts are pessimistic and expect home sales to continue to decline until mid-2009.

The Congressional Budget Office reported that the budget deficit could reach as high as $407 billion this year and could go beyond $438 billion in 2009 with the government takeover of Fannie Mae and Freddie Mac. The near record breaking deficit (the record deficit of $413 billion occurred in 2004) can be attributed to high food and energy prices, weakness in our economy, the continuing slump in the housing market, and the problems within America’s financial markets.

The Congressional Budget Office forecasts the economy will see a 1.5% growth (in real terms) this year and a mere 1.1% growth (in real terms) in 2009. These forecasts indicate the economy could still fall into a recession so we will have to keep an eye out and keep a close watch on the GDP and economic growth other the next two quarters.

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Posted in Categories: Contributor, Economy, Eurozone, External Research, Japan, Stocks, USA.

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