3 Reasons Markets Were Down Despite Warren Buffett’s Heroics

Markets closed down on Wall Street today: Dow -1.51%, S&P -1.56%, Nasdaq -1.95%, Oil -0.25%, Gold +0.88%.

On the commodities front, Oil (NYSE:USO) fell to $84.95 a barrel. Precious metals were up, with Gold (NYSE:GLD) climbing to $1,772.70 an ounce and Silver (NYSE:SLV) up 4.88% to $41.12 an ounce.

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Today’s markets were down because:

1) Europe. While intended to protect markets from a huge sell-off that could ultimately hurt the economy, the ban on short selling in Italy, France, Spain, and Belgium has been ineffective. First instituted on August 12, the ban has failed to prevent European financial stocks from declining 8% in the last 13 days, both because government interference in the markets creates another fear factor for investors, and also because many investors don’t really understand what the short-selling ban means, or how it is applied. Today, France, Spain, and Italy decided to extend the ban for at least another month, with France considering keeping it in place until November 11, or at least until markets stabilize. On top of all that, there’s speculation that both France and Germany, the region’s two largest economies, could be facing a ratings downgrade. It seems that ineffective policies and economic woes abroad will continue to weigh down U.S. markets in the absence of positive economic news like that which had markets rallying over the last three days, paring last week’s losses.

2) Jobless claims. This morning, the U.S. Department of Labor released its weekly report on unemployment benefits applications for the week ending August 20. Last week, initial claims rose to 417,000, an increase of 5,000 from the previous week’s upwardly revised figure of 412,000. With jobless claims expected to decline last week, this morning’s figures were a huge disappointment, especially since it was only a few weeks ago that initial jobless claims fell below the 400,000 mark that signals whether the economy is adding or eliminating jobs.

3) Bank of America. With the announcement that Warren Buffett’s Berkshire Hathaway would be investing $5 billion into the bank, its share price climbed over 9%. The investment will help keep the company afloat after subprime mortgage-related losses have left the lender low on capital. Bank of America’s (NYSE:BAC) plummeting stock has been a heavy weight on the Dow, but today it was one of only two components not in the red. While markets opened up this morning, BofA’s news ultimately wasn’t enough to keep them there. Still, bank stocks were some of the biggest gainers today, with BofA leading gains by Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), Barclays (NYSE:BCS), and Morgan Stanley (NYSE:MS).

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