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Stocks Give Back Yesterday’s Gains as Troubled Mortgages Rise to Nearly 12%

US Session Key Developments

  • JPMorgan Credit Outlook Slashed By Moody’s
  • Troubled Mortgages Jump to Nearly 12%
  • FDIC Chief Says Funds May Dry Up
  • Citibank Shares Trade Under $1

Stocks Give Back Yesterday’s Gains As Troubled Mortgages Rise to Nearly 12%

Stocks were pummeled today with Financials continuing their slide after President Obama’s mortgage bailout plan was revealed to benefit only those whose home loans were owned by Fannie Mae or Freddie Mac. Banks like Wells Fargo, which owns 16% of the mortgage market, will likely not directly benefit as a result. As such, any confidence that Obama’s plan would help stabilize the banks went down the drain. If that wasn’t enough to bring down the financial sector, JPMorgan’s credit outlook was slashed by Moody’s yesterday in after-hours trading. Indeed, the bank which was first hailed as a beacon of financial stability may now be in danger. The credit rating agency stated that JPMorgan’s health was at risk due to its direct exposure to bad loans and credit defaults.

Housing data continued to plague the industry. Data showed that Mortgage Delinquencies jumped 7.88% in the final quarter of 2008. Overall, nearly 12% of all mortgages are either late, delinquent, or are in foreclosure.

Sheila Blair, the Chairman of the Federal Deposit Insurance Corp. (FDIC) said that the pool of money that it holds to insure consumer banking accounts for up to $100,000 could dry up by the end of the year. In response to a swarm of letter that the corp. received as a result of FDIC fee increases she stated “without these assessments, the deposit insurance fund could become insolvent this year.” All this inertia led Citigroup, which was once the largest bank by market capitalization, to trade under $1 per share for about 40 minutes today. Shares of the embattled bank reached a low of 97 cents. Citigroup ended the day down -9.73% at $1.02 per share with JPMorgan finishing down -13.99% at $16.60.

Dow 30                   6594.44                      -281.40                      -4.09%
Every sector in the Dow Jones Industrial Average took a beating with Financials seeing the worst of the storm. The sector dove -12.90% with Materials tanking -9.08% with it.

NASDAQ               1299.59                       -54.15                          -4.00%
NASDAQ sector performance was more evenly distributed with Financials dipping -6.68% and Information Technology falling -3.58%. Microsoft and Cisco were the most actively traded stocks, declining -5.27% and -4.59%, respectively.

S&P 500                682.55                         -30.32                        -4.25%
The S&P plummeted as much as 4.9% on the day before profit-taking forced the index to close the day down -4.25%. The most active stock was JPMorgan which saw 33.61 million stocks traded as it fell -13.99%. The VIX volatility index jumped to 50.17 or by 5.49%.

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U.S. Consumer Prices Rise Above Expectations…EXCLUDING ENERGY

When excluding food and energy, whose primary component (gasoline) rose in price by 6.0% on the month, the Consumer Price Index rose 0.2% in the month of January alone. Expectations called for a rise of only 0.1%. December’s figure stayed flat from the month prior. Overall inflation in the 12 months through the first month has come out to be 1.7%, a tick down from the previous month’s data, but still 0.2% points above expectations.

In a speech given on Wednesday, Fed Governor Ben Bernanke stated that such developments would “help to better stabilize the public’s inflation expectations, thus contributing to keeping actual inflation from rising too high or falling too low.” Indeed, the central bank’s projected 2.0% longer-run inflation target seems to be on track to be met.

On the news, the U.S. Dollar continued it’s overnight rebound against the Euro. -LG

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