Stocks tumbled out of the gate Thursday as buzz about Lehman Brothers stirred jitters about the health of the banking sector.
Lehman Brothers shares which shed more than 50 pecent in the first three days of the week, dropped another 40 percent, leaving the stock trading around $4 as the brokerage has failed to reassure investorsof its financial stability. Lehman has been under the gun for months but the assault has intensified this week amid speculation that the brokerage is having trouble raising capital and finding a partner to buy its asset-management unit.
On Wednesday, a slew of firms, including JPMorgan, Wachovia, Goldman Sachs, Citigroup and Sanford Bernstein widened their projected losses for Lehman and cut their price targets on the stock.
"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," Arthur Hogan, chief market analyst at Jefferies, told Reuters.
Sanford, however, asserted that Lehman would not suffer a similar washout as Bear Stearns experienced.
Washington Mutual shares, which have been under pressure since the firm ousted its CEO on Monday, tumbled nearly 20 percent. 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 .
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, with the market being the forward-looking animal that it is, optimism began to filter back into the market.
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 came under pressure 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 reported its profit jumped 31 percent as price increases and new products such as low-sodium soups helped offset high commodity prices. The company, which makes everything from soup to Prego pasta sauce, V8 juices and Peperidge Farm cookies, also said sales growth in the just-started 2009 fiscal year should top its forecast.
Railroad CSX raised its forecast for 2008 and beyond, citing further room for pricing growth and industry momentum. The company now expects 2008 earnings of $3.65 to $3.75 a share, up from its prior estimate of $3.40 to $3.60 a share, and pegs growth through 2010 that is 20 to 25 percent higher than that, up from its initial estimate of 18 to 21 percent growth.
Today is the seventh anniversary of the Sept. 11 attacks. The New York Stock Exchange held a moment of silence at 9:25 a.m. ET to remember the victims. Nasdaq held its moment of silence at 10:29 a.m.
STILL TO COME:
THURSDAY: Treasury Budget
FRIDAY: Producer prices; government reading on retail sales; business inventories; consumer sentiment
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