Lehman Following Fannie? Goldman Lowers Sector View

Renewed inflation fears, as well as concerns about financials, continue to weigh on markets. Many investors who attempted to buy financials just after the bottom in mid-July are coming to the realization that the news flow in the financials has the potential to be negative for some time, and as a result they are primarily trading stocks and not long-term holds.

Goldman epitomized this realization with its note last night on the brokers, entitled, "Tides are not changing; more write-downs and asset sales to come."

Goldman is lowering estimates for Q3 and the full year across their entire universe of brokerage. It believes that Q3 will be the fourth consecutive quarter of overall losses for the industry, an unprecedented negative streak.

Fannie Mae and Freddie Mac were the first stocks to break through their July 14 low; now Lehman Bros. is close.

The July 14 closing low for Lehman was $12.40; it is trading this morning at $12.81.

This has important implications for the S&P 500: much of the second half turnaround in overall earnings is based on the idea that financials will begin reporting positive results in the second half. This is not going to happen, for the most part, and as a result strategists are now frantically readjusting their earnings expectations.


1) Electronic payment equipment maker VeriFone up 25 percent as it provided second-half estimates well above analyst expectations; the strength is in international.

2) Hewlett-Packard up 3 percent; like IBM H-P reported a solid quarter. Remember, the EDS deal should close soon; H-P will hold an analyst day September 15th to discuss that.

3) US Air completed its public stock offering, which included issuance of 19 m shares at $8.50 per share, as well as 2.85 m shares as a greenshoe (the overallotment granted to the underwriter, Merrill Lynch). Down 6 percent pre-open.

4) Thanks for the cynical analysis: UBS raising price targets (but not earnings estimates) on food companies: Kellogg, General Mills, Heinz and Campbell Soup. Partly it's due to the positive effects of lower commodities, because these companies have already announced price increases. But the slower economy is the real reason for the modest optimism: "Our analysis shows that consumers' eating at home increases as job losses pick up."

Questions? Comments? tradertalk@cnbc.com