The two weak links in yesterday's market--housing and brokerage stocks--continued to be the weak links today.
1) House prices declined 3.2% in Q2 from a year earlier, according to the S&P/Case-Shiller U.S. National Home Price Index. Home builders like Centex ,Lennar and DR Horton down 4%-6% this morning; most builders are at multiyear lows. DR Horton, for example, is at 4 year lows, down about 60% from its historic high of $42 in July 2005.
2) Merrill Lynch's Guy Moszkowski downgraded Bear Stearns and Lehman Bros. because of their greater dependence on debt markets; they note that Merrill and Morgan Stanley are more diversified.
He also downgraded Citi and lowered estimates for JP Morgan Chase , due to the expected impact on the banks' Investment Banking units from bridge-financing commitments.
Goldman made similar comments over the weekend (though did not downgrade any stocks), noting that August in general has been ugly for brokers, with investment banking and fixed income both weak.
Meanwhile, big multinational growth stocks continue to outperform the overall market. JP Morgan, in a note to its clients this morning, attributed the outperformance to a weak dollar and the dominance of a growth investment strategy. They conclude by saying that "We think both trends will remain relevant for the rest of the year as actual 3Q07 earnings will likely beat expectations and the dollar will remain weak against other major currencies."
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