Futures Tumble as Lehman Falls 40%
Stock index futures pointed to a lower open for Wall Street on Thursday, as fears over the health of the banking sector returned to the market.
Lehman Brothers, which on Wednesday announced a bigger-than-expected loss and steps to raise capital, failed to reassure investorsand its shares closed lower after bouncing around all day, reflecting investor uncertainty.
Shares were off another 40 percent premarket, trading around $4, as a slew of firms, including JPMorgan, Wachovia, Goldman Sachs, Citigroup and Sanford Bernstein widened their projected losses and cut their price targets on Lehman. Sanford, however, asserted that Lehman would not suffer a similar washout as Bear Stearns experienced.
"We thought getting news out of Lehman was going to clear the dark cloud but it really doesn't. It just leaves us with a company that's limping along, that may or may not make it," said Arthur Hogan, chief market analyst at Jefferies, told Reuters.
Washington Mutual shares, which have been under pressure since the firm ousted its CEO on Monday, tumbled more than 10 percent pre-market. The stock hit an 18-year lowon Wednesday after Standard & Poor's slashed its outlook for the bank.
Other financial shares were also under pressure, including Merrill Lynch and Goldman Sachs off 2 percent.
Banking stocks dragged down Asian markets, which closed in the red, with Japan shedding nearly 2 percent, while European markets were also trading lower in mid-morning.
But optimistic predictions started to make way into the markets. Hedge fund manager Jim Chanos, who makes money betting that companies' stock prices will fall, said financial stocks have probably seen the worst and his fund has fewer short positions now than it did in the past.
And in London the FTSE may be in for a bull run as the index seems to have largely ignored the bad news over the past two months, market historian David Schwartz said.
In economic news, jobless claims fell by 6,000 last week, less than expected. Continuing claims hit their highest level since October 2003. Separate reports showed import prices fell 3.7 percent and export prices skidded 1.7 percent, both worse than expected, while the trade gap widened by 5.7 percent to $62.2 billion, its widest in 16 months.
Oil prices fell as the pressure of a rising dollar and concerns about global demand outweighed earlier bullish news that OPEC had agreed to cut output by about 500,000 barrels per day. US light, sweet crude dropped to near $102 while London Brent crude fell under the $100 mark.
Shares of auto makers also will be in focus after JPMorgan said it's becoming increasingly likely that the federal government will provide loans to the industry, easing liquidity concerns. But General Motors fell 3.5 percent premarket after the Wall Street Journal reported that the government is pressuring the company to absorb $1.5 billion in pension obligations of parts producer Delphi.
In earnings news, Campbell Soup will report before the bell and is expected to post a rise in profit per share to 25 cents from 14 cents a year ago.
The NYSE will hold a moment of silence before trading beings, to commemorate the victims of the terrorist attacks on September 11, 2001, between 9:25 and 9:26 am New York time. NASDAQ will hold a moment of silence between 10:29am and 10:30am.
STILL TO COME:
THURSDAY: Treasury Budget
FRIDAY: Producer prices; government reading on retail sales; business inventories; consumer sentiment
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