US Market stumbles as financial sector sinks

Dow was up by 100 points earlier in day but ends in red though crude prices retreat

After a full day of whipsaw trading, US Market ended with losses today, Monday, 07 July, 2008. Market started the day with strong gains. But it failed to hold on to the same. Oil prices dropped drastically but the same did not come to any relief. A lack of concerted leadership during trading contributed to the broad-based declines. Financials were the worst performer yet again.

After being up by almost 100 points earlier during the day, The Dow Jones industrial Average was also down by more than 100 points at one point of time. Finally, it ended the day with a loss of 56.58 points at 11,231.96. The Nasdaq Composite Index, finished lower by 2 points at 2,243. S&P 500 finished lower by 10.3 points at 1,252.67.

Seventeen out of thirty Dow components ended in the red today. Merck and Walt Disney were a couple of main laggards. Both the stocks plummeted after being downgraded at different firms.

The financial sector came under severe pressure today after Fannie Mae and Freddie Mac were two notable laggards in the sector. The two stocks encountered selling pressure on news that accounting changes could force the companies to bring off-balance sheet assets on to their books, thus requiring large capital raises. Both the stocks fell by 16% to 17%.

Corporate news dominated Wall Street today. First, Microsoft is reported to be willing to enter discussions with Yahoo! if Yahoo replaces its board of directors. Next, General Electric's NBC Universal is joining Blackstone Group and Bain Capital to purchase The Weather Channel for $3.5 billion. Also, Merrill Lynch might be planning to sell its stakes in holdings like Bloomberg and BlackRock soon which would generate cash to help offset potential write-downs and adjustments.

Crude prices fell for the first time in four days today. Prices dropped by more than $6 earlier in the day today but then pared some of their losses and closed lower by more than $3 at the end. The stronger dollar and Iran’s nuclear programme related comments during the weekend affected crude prices. Crude-oil futures for light sweet crude for August delivery today closed at $141.37/barrel (lower by $3.92/barrel or 2.7%) on the New York Mercantile Exchange. Prices fell by almost $6 to $139 during intraday trading. Last week, prices gained $5.08 (3.6%).

At the currency markets on Monday, the U.S. dollar had began the week higher against major currencies aided by a firmer tone in equity markets, a retreat in oil prices and reluctance to sell the greenback in the midst of the meeting of the Group of Eight world leaders in Japan. But the dollar lost its gains in mid-day trading after the equities market turned south, spooked by news of possible capital raising by U.S mortgage giants Freddie Mac and Fannie Mae. The dollar index which measures the greenback against a trade-weighted basket of currencies fetched 72.668, down from 73.104 earlier in the day.

Volume on the New York Stock Exchange topped 1.5 billion shares, with declining issues running ahead of those advancing more than 2 to 1. On the Nasdaq, more than 1 billion shares traded, and decliners topped advancers 2 to 1.

For tomorrow, the economic report starts with the pending home sales report for May. The earnings calendar is marks Alcoa kicking off the second quarter after the close.