Wall Street pulls back as financials hit lows
NEW YORK » Wall Street retreated yesterday after Fannie Mae and Freddie Mac fell to their lowest levels in nearly
20 years on concerns that the government might need to bail out the mortgage financiers. Weakness in the overall financial sector sent the Dow Jones industrial average down more than 175 points.
Investors were again uneasy about the health of financial companies after media reports of further problems in the sector. Barron's said the U.S. Treasury might have to bail out government-chartered Fannie and Freddie, which, the weekly noted, would likely wipe out shareholders' equity in the companies.
Meanwhile, the Wall Street Journal, citing unidentified sources, reported that Lehman Brothers Holdings Inc. might surprise Wall Street with weaker-than-expected third-quarter results.
The National Association of Home Builders monthly index on the housing market remained flat at 16 in August. That met the expectations of economists surveyed by Thomson Financial/ IFR. Benchmarks related to current sales and expectations of future sales improved, but apparently not enough to move investors to buy.
Todd Leone, managing director of equity trading at Cowen & Co., said the worries about Fannie and Freddie dominated market sentiment in an otherwise light day.
"It'll be one of the slowest days of the year and I think it just kind of fed into itself," he said, referring to the effects of very light volume and the unease over the companies.
The Dow Jones industrial average fell 180.51, or 1.55 percent, to 11,479.39. The Dow had been down about 225 points at its lows of the session.
Broader stock indicators also declined. The Standard & Poor's 500 index fell 19.60, or 1.51 percent, to 1,278.60, and the Nasdaq composite index fell 35.54, or 1.45 percent, to 2,416.98.
Last week, the Dow finished lower, but the S&P and the Nasdaq composite index ended higher, with financial sector problems again helping to bring stocks down.
The Russell 2000 index of smaller companies fell 11.40, or 1.51 percent, to 741.97.
Declining issues outnumbered advancers by about 3 to 1 on the New York Stock Exchange, where volume came to a very light 986 million shares.
Light, sweet crude fell 90 cents to settle at $112.87 a barrel on the New York Mercantile Exchange, after rising as high as $115.35.
Bonds rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.82 percent from 3.84 percent late Friday.
The dollar was mixed against other major currencies, while gold prices rose.
Fannie Mae shares fell $1.76, or 22 percent, to $6.15, and Freddie Mac fell $1.46, or 25 percent, to $4.39, after the Barron's report.
Lehman shares fell $1.14, or 7.1 percent, to $15.03, after the Journal's report.