3 Reasons Markets Were Down As Financial Stocks Headed for New Lows

Markets closed down on Wall Street today: Dow -3.94%, S&P -4.73%, Nasdaq -5.34%, Oil -6.87%, Gold +1.91%.

On the commodities front, Oil (NYSE:USO) plummeted to $81.56 a barrel. Precious metals were up, with Gold (NYSE:GLD) climbing to $1,828.00 an ounce and Silver (NYSE:SLV) rising 0.88% to $40.75 an ounce.

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Today’s markets were down because:

1) Initial jobless claims. Initial jobless claims for the week ending August 13 were reported today, with 408,000 new applications for unemployment benefits, well above economists’ expectations, and an increase of 9,000 over the previous week’s upwardly revised 399,000 new claims. While any number below 400,000, when sustained over a period of weeks or months, means the job market is growing and unemployment is declining, any number above 400,000 indicates the opposite.

2) Home sales. While the high rate of unemployment in the U.S. is one of the biggest drags on the economy, the other is the poor housing market (NYSE:IYR), and today the National Association of Realtors reminded us of that fact. The NAR’s report on existing home sales showed that 3.5% fewer homes were sold in July than in June. The national median existing-home price also fell, down 4.4% from the previous year, despite a 21% year-over-year increase in the annual sales rate, which was 4.67 million in July. With the housing market already doing poorly, any decline is another step away from economic recovery and another step toward a recession.

3) Banks. Growing concern that European banks hard-hit by the region’s sovereign debt crises are vulnerable to increasing financial pressures and might lack sufficient capital to fund necessary day-to-day operations had the financial sector posting some of the market’s biggest losses today. Add to that news that a Manhattan court could decide that Bank of America (NYSE:BAC) has to buy back any faulty mortgages it sold, even if they didn’t result in default, and you have widespread panic. The ruling could cost Bank of America $9 billion more in liability, and would set a new precedent for other U.S. banks being sued by investors. Some of Europe’s biggest banks, and some of today’s biggest losers, were France’s Société Générale SA, Germany’s Deutsche Bank AG (NYSE:DB), Italy’s UniCredit SpA, the Royal Bank of Scotland (NYSE:RBS). In the U.S., JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and of course, Bank of America, all watched their share prices plummet.

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