CLOSING WRAP-UP, August 23

Stocks close near the flat line on some profit taking and uncertainty about next Fed move. The Dow () ended the session flat, closing at 13,235.88. The S&P 500 () fell 1.57 points Thursday to 1,462.50. The NASDAQ () lost 11.10 points to finish the session at 2,541.70. Volume remained very light on the session with the NYSE trading 1.24 billion shares and the Naz turning over 1.65 billion shares. Market breadth was flat on the Big Board, but negative on the Naz by a 12-to-18 margin.  

Traders were encouraged in the early going by news Bank of America () had invested $2 billion into Countrywide Financial (). CFC has been in the news a lot of late due to its position in the mortgage industry, especially in subprime loans. Though much of CFCs problems were overblown in the media, traders are pleased to see the confidence BAC has in the firm during tough times. BAC shares added 0.3 percent on the news and CFC gained nearly one percent.

In an interview on CNBC, Countrywide’s CEO stated his company is no closer to bankruptcy now then they were six months ago. However, he also stated that with weakness in the housing market, he expects a recession. The Fed is doing what it feels is needed to help liquidity, adding $17.25 billion in reserves. However, traders and many economists are calling for the Fed to take the next step by cutting the Fed funds rate. The cut in the discount rate last Friday was a step in the right direction, although there haven’t been a lot of banks using the discount window.

Home Depot () shares fell 2.2 percent today after the Financial Times reported that the company might not be able to sell its wholesale supply unit. Problems in the financial markets have left investors weary of making the $10.3 billion deal despite changes to the initial deal.

The general feeling is that the Fed is making headway, but there remain significant risks. One concern is that the problems in the mortgage and housing sector could lead to significant declines in earning for financial stocks in the third quarter. We will just have to see if this negative news has already been priced into stocks. Though Fed fund futures are pricing in a rate cut by the FOMC, it they decide not to cut rates it could lead selling.

Jody Osborne
Senior Writer & Options Strategist
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