Morning Watch, August 25
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August 25, 2008
Surprise, surprise! Financials lead stocks lower to start the week. Concern about Fannie Mae (FNM) and Freddie Mac (FRE) remain and Lehman Brothers (LEH) is taking a hit in early trading. Last week, Fed Chairman Bernanke noted that the credit markets are a major concern. Economic news could impact stocks this week, but Monday’s calendar was light with only data on existing home sales released. Overall, the Dow ($INDU) fell triple digits in early trading with large moves common of late.
Existing home sales came in stronger than expected for July at an annualized rate of 5.0 million. This was a gain of 3.1 percent, but this did little to ease inventory problems. Supply rose to 11.2 months, up a tenth from June and up 4-tenths from May. As a result, the median price for an existing home fell 1.3 percent to $212,400, down 7.1 percent in the past year. New home sales data will be released Tuesday and these reports are getting a lot of attention with falling home prices and increased foreclosures one of the biggest threats to the economy.
FNM and FRE are seeing gains Monday, although the financial sector in general is seeing declines. Three of the largest decliners on the Dow include AIG (AIG), American Express (AXP) and Bank of America (BAC). Mr. Bernanke stated last week that the credit markets are a major problem for the economy and this has been a problem for the sector and market in general. Last week, LEH shares rallied to end the week on takeover speculation, but the stock is down more than 7 percent.
Advanced Micro (AMD) and Broadcom (BRCM) are in the news Monday after AMD announced it will sell its TV-chip division to BRCM for $192.8 million. AMD is looking to trim its debt to boost profits and the move was viewed positive by traders with AMD shares up nearly 4 percent, though BRCM shares are down 3 percent.
Oil prices continue to be a focus with large swings the norm of late. On Friday, crude fell more than five percent to a price near $114.50. Monday is seeing the commodity fall slightly, down 50-cents to a level near $114. The fact that tensions between Russia and Georgia are subsiding and demand is easing has left the commodity down from highs near $147 just a few months ago.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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