Wall Street Surrender Gains

Weakness In Financial Sector Sent The Market Lower

Stocks on Wall Street ended the session sharply lower, with the Dow closing down 280 points erasing nearly all of the gains posted in the previous session. Weakness in the financial sector sent the markets lower on negative news on Lehman Brothers.

The major averages which fell further in the final hour of the session, closed at their worst levels of the day. The Dow closed down 280.01 points or 2.4% at 11,230.73, the Nasdaq closed down 59.95 points or 2.6% at 2,209.81 and the S&P 500 closed down 43.28 points or 3.4% at 1,224.51, marking the largest one day percent decline since February 2007.

Weakness was broad-based, 91% of the S&P 500 components posted a loss and all ten of the economic sectors settled in negative territory. Volume was on the heavy side, with 1.7 billion shares exchanging hands on the NYSE.

If we look sector wise the financial sector, which fell by 6.6%, acted as the main drag on the market, with Lehman Brothers sparking much of the selling interest. Lehman Brothers plunged 45% as traders speculated about the firm's capital position after reports indicated that a state-run Korean bank is no longer in talks to buy some or all of Lehman. However, Reuters said that a Korean official denied the reports. Shares of Lehman Brothers fell further after Standard & Poor’s put the investment bank’s credit ratings on Credit Watch with negative implications. S&P stated that the drop in Lehman’s stock could hinder the company’s ability to raise capital.

The energy sector plunged by 6.4% got clipped as energy commodities fell 3.6%. The losses came on expectations that Hurricane Ike would spare production in the Gulf of Mexico and OPEC would leave its oil output unchanged. Crude prices fell a steep 4.2% to $101.87 per barrel, which is the lowest level since April.

Adding to the selling pressure, the National Association of Realtors released a key report on pending home sales. In the report, the NAR said that that pending home sales fell by 3.2% in July following an upwardly revised 5.8% increase in June. Pending sales fell 7.5% in the Northeast and 10.6% in the West, while the Midwest was up 2.8% and the South was flat. Hurt by the disappointing report on pending home sales, housing stocks showed considerable weakness as well. The Philadelphia Housing Index fell 6.9 percent, reversing the gain posted in the previous session.

Going in detail index wise, the majority of the Dow Jones stocks ended the session with notable losses, sending the blue chip index sharply lower. Of the 30 stocks that make up the Dow, only 5 ended the session with gains.

AIG led the Dow lower on fears that the company’s exposure to the mortgage markets may force the company to raise fresh capital. Shares of the insurer ended the day down 19.3 percent. With the decline, the stock gave back all of the gains posted in the previous two sessions, closing at its worst level in well over ten years.

Other financial stocks inside the Dow closed sharply lower as well, including Citigroup, Bank of America and JP Morgan Chase. Citigroup closed down 7.1%, Bank of America closed down 6.4% and JP Morgan Chase closed down 5%.

Reversing most of a gain posted in the previous session, American Express also saw significant selling pressure. Shares of the credit card issuer fell 5.6%, although they remain in a nearly two-week trading range.

Amid fears a global economic slowdown, Caterpillar posted a substantial loss as well. The construction equipment manufacturer ended the session 5 percent lower, extending a recent downtrend. With the decline, the stock closed at its worst level in well over a year.

Pfizer, Exxon Mobil and Home Depot also showed considerable weakness. Pfizer ended the session 4.7 percent lower on news that it will withdraw all marketing applications globally for its skin treatment drug dalbavancin. Exxon Mobil closed down 4.6 percent, compared to a 3.4 percent decline by Home Depot.

On the other hand, Coca Cola ended the session with a notable gain. Shares of the beverage maker closed up 0.9%, extending a recent up trend. McDonald’s also ended the day sharply higher. The stock saw a gain of 1.2%, adding to gains posted in the past two sessions. Earlier in the day, the company reported 8.5% growth in its global comparable sales for the month of August, helped by its popular breakfast menu, Olympic-related marketing, and extended hours.

In Commodity market, the gold closed lower for a seventh straight session, hurt by a stronger dollar and lower crude oil prices. December gold ended down $10.50 at $792 an ounce, its lowest closing mark of 2008. Gold touched as low as $780.20 an ounce earlier in the day.

The Crude-oil futures dropped almost 3% to close at their lowest level since April as concerns waned over potential damage to energy infrastructure in the Gulf of Mexico from Hurricane Ike, and comments from a key oil producers' meeting in Vienna indicated a likely decision to leave output quotas unchanged. Crude for October delivery fell $3.08, or 2.9%, to close at $103.26 a barrel on the New York Mercantile Exchange. It dropped as far as $103.15 during the session to mark a fresh five-month low. Prices extended their decline into electronic trading evening to drop below $102 per barrel.

Earlier on the day, the stock markets across the Asian region closed sharply lower, as traders did some profit taking following Monday's rally. The Japanese Nikkei 225 average closed down 1.8%. Hang Seng China Enterprises tracked Shanghai stocks lost 2.79% to 10,825.25 while the benchmark Hang Seng index closed down 1.46% at 20,491.1. The BSE Sensex declined 0.41% to 14,883.4.

The major European markets also ended the session lower after trading in a mixed fashion earlier in the day. The French CAC 40 Index closed down 1.1%, while the German DAX Index ended the session 0.5% lower. The U.K’s FTSE 100 Index finished the day down 0.6%.

Looking ahead the economic calendar features the Mortgage Bankers Association weekly report on mortgage applications, which will be followed by the Energy Information Administration weekly data on crude oil inventories.