The Dow and the S&P 500 fell to their lowest levels in three months after trading commenced Monday afternoon. Shortly after a major U.S. broker downgraded Citigroup to a “sell” recommendation, investors showed an overall concerned market sentiment as many more mortgage losses may still lie ahead. Goldman Sachs also contributed to the overall feeling on Wall Street as Goldman recommended that investors sell shares of Citigroup (C), stating that “the bank may have to write off $15 billion as mortgage losses reduce earnings”.
According to Sam Rahman, a portfolio manager at Baring Asset Management, Inc, “Everybody is expecting there will be more charges and write-offs. But the Goldman downgrade of Citigroup took the market by surprise. First, there is the magnitude of the write-offs they are predicting, plus it is unusual to see a ‘sell’ recommendation on such a large company.”
Investors also had to contend with the continually slowing housing market. The Dow Jones U.S Home Construction Index, falling to their lowest level in 4 ½ years, also aided the bear market. In fact, a leading construction company commented that “U.S. Home builder sentiment stayed at a record low in November.”
The National Association of Home Builders also added that potential buyers cancelled house orders, since they faced higher hurdles obtaining mortgages from various lenders. As a result, Lowe’s, a leading home improvement chain, slashed their full year profit outlook. Shares of Lowe’s fell 7.6% and closed at $23.12.
The Dow Jones industrial average was down 218.35 points, or 1.66 percent, to end at 12,958.44. The Standard & Poor’s 500 Index was down 25.47 points, or 1.75 percent, at 1,433.27. The Nasdaq Composite Index was down 43.86 points, or 1.66 percent, to close at 2,593.38.
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