CLOSING WRAP-UP, August 28

Stocks tank Tuesday with the selling picking up following the FOMC minutes.

The Dow () ended the session with a loss of 280.28 points to close at 13,041.85. The S&P 500 () fell 34.43 points Tuesday to 1,432.36. The NASDAQ () gave up 60.61 points to finish the session at 2,500.64. Volume remained light on the session with the NYSE trading 1.40 billion shares and the Naz turning over 1.58 billion shares. Market breadth was negative by a 4-to-29 and 6-to-24 margin on the Big Board and Naz respectively.

Things got off to a rough start initially Tuesday on a downgrade of several large banks and a drop in consumer confidence. News that housing prices also fell in the second quarter added to the bearish tone. However, it wasn’t until the release of the August 7 FOMC minutes that the selling really picked up.

These minutes showed that the Fed remained more concerned about inflation at the August 7 meeting. However, this was already known from the Fed statement at the time. It was actually just a few days after this meeting that the bottom fell out of the credit markets. Therefore, it seems traders just used this news as a reason to take profits. We’ll get a better idea of what the Fed is thinking hopefully Friday when Fed Chairman Bernanke speaks.

Consumer confidence fell 6.9 points in August to a level of 105.0, which was inline with estimates. Interestingly, sentiment waned when dealing with the jobs market, but actually ticked higher for house buying plans. Friday will see the release of the University of Michigan report on consumer sentiment.

News that housing prices fell 3.2 percent compared with the year ago period was a bearish event as well. Standard & Poor’s stated that this is the largest year on year drop for housing prices in the 20-year history of the report. The London Times also reported that State Street Corp () has $22 billion worth of exposure to asset-backed commercial paper.

Merrill Lynch added to the bearish tone Monday when it cut its rating to “Neutral” from “Buy” for Lehman Brothers (), Bear Stearns () and Citigroup (). This led to a decline of 6.0 percent, 3.4 percent and 3.5 percent respectively for these banking stocks. Merrill is worried about the companies’ exposure to the debt-market.

Jody Osborne
Senior Writer & Options Strategist
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