MORNING WATCH, Aug. 28

Stocks fell early Tuesday after Merrill Lynch analysts cut their ratings on rival banks and ahead of a report that is expected to show a decline in consumer confidence. Shortly after the opening bell on Wall Street, the Dow Jones Industrial Average () was down 50 points and the NASDAQ () had given up 13.

Brokerage stocks are lower after Merrill Lynch cut ratings on Lehman Brothers (), Bear Stearns (), and Citigroup () to "neutral" from "buy”. The firm believes that exposure to the debt markets will have a negative impact on earnings.  LEH is down $2.11 to $55.64, BSC gave up $3.70 to $108.50, and Citi is the Dow’s biggest loser after falling .95 to $46.84 a share.

Economic data might affect early action as well. A report on consumer confidence is due out at 10:00 a.m. Eastern time. Economists expect the index to fall to 104 in August, down from 112.6 the month before. The release of the Federal Reserve Open Market Committee [FOMC] minutes this afternoon will get some attention as well.

Bonds are trading higher for a second day ahead of the economic data.  The benchmark ten-year Treasury bond (September) is up 7/32^nd and its yield is now 4.56 percent. Crude oil is up 7 cents to $70.04 a barrel. Gold is off $1.20 to $674.90 an ounce.  

Overall, it is a relatively slow news day. The brokers are leading the financials lower. Consequently, yesterday’s market weakness is spilling over into today’s trading session. Bonds are higher and yields are lower in anticipation of a weak consumer confidence report. However, the FOMC statement has the potential of stirring things up this afternoon. Since the Fed lowered the discount rate on August 17^th, expectations have been for a more friendly and accommodative Fed. However, the FOMC minutes are from August 7^th and will probably reflect a more vigilant, and less friendly, Federal Reserve.  

Frederic Ruffy
Senior Writer & Index Strategist
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