Closing Bell: 08.28.07

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The day started ugly. Merrill Lynch cut the ratings on Bear Stearns, Citigroup and Lehman Brothers. The was the second day in a row of downgrades for Bear and Lehman, who had been cut (along with Morgan Stanley) by Goldman Sachs on Monday. “Kicking them while their down,” some said. Shares in Bear, Citi, Lehman, and Morgan Stanley all fell in today’s trading.
Much of the chatter today was about exposure to credit market losses. Reports pegged State Street as having the largest exposure to asset-backed commercial paper, one of the markets where liquidity has recently become as scarce as rocking horse manure. State Street fell almost 4% today.
The release of the notes from the last Federal Reserve meeting set off the usual round of Fedlinology, with traders looking for signs of whether or not the Fed would cut rates. Never mind that the minutes are now twenty-one days old, meaning they predating the liquidity crisis that led central banks around the world to pour out cash and sent the equities markets into turmoil. Practically ancient history now. But still, some hoped that their would be signs the Fed was planning a rate cut at that early date. Such signs were not in evidence.
The Dow Jones Industrial Average dropped 279.88 to land down at 13042.25. The S&P 500 fell 34.42 to 1432.37. The Nasdaq Composite Index stumbled 60.61 to 2500.64.
Selling accelerated in the final hours, and the now familiar trading curbs returned to the NYSE. Volume was light, but not unusually so for a late-August day. Much of the movement in stocks amounted to what some quantitative hedge fund managers refer to as "misbehavior." In other words, stocks that the quant computers think should have gone up went down, and vice versa. That might spell pain for long-short quants who haven't learned their lesson from the market's last bout of misbehavior.
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