Russell 2000 falls
The Russell 2000 (NYSE: IWM) stumbled and the Dow ended the day a hair below the flat line as investors tried to make sense of the U.S. mortgage sector. The small-cap index fell 10.31 points, or 1.29%, to 788.25, snapping a five day winning streak. The Dow Jones Industrial Average (INDU) lost 0.25 points, or 0.00%, to 13,235.88.
Stocks got off to a positive start this morning following news that Bank of America Corp. (NYSE: BAC) bought a $2 billion stake in mortgage lender Countrywide Financial Corp. (NYSE: CFC).
Investors took the deal, which was inked after Wednesday’s close and has received regulatory approval, as a sign that Countrywide can rely on the financial support of America’s second largest bank to see it through the ongoing slump in the U.S. housing sector.
The Calabasas, Calif.-based company, the largest U.S. mortgage lender, has been struggling to find the funds necessary to stay afloat while dealing with rising delinquencies and foreclosures. On August 16 Countrywide had to tap an $11.5 billion credit line to boost its liquidity.
Also contributing to the cautiously optimistic mood in the morning was news from the U.S. Labor Department that the number of unemployment claims for the week ended August 18 fell by 2,000 to 322,000. That was in line with economists’ expectations and a sign that the labor market remains strong despite the recent financial turmoil.
The major indices opened in positive territory, but the Russell 2000 quickly slipped into the red, failing to pierce Wednesday’s closing level for the remainder of the session. The Dow stayed in the green until about 11 a.m. ET.
That’s when news came out that Countrywide’s CEO Angelo Mozilo predicted that the slump in the U.S. housing sector could lead to broader economic problems.
Appearing on CNBC television, Mozilo also said that while his company is strong, he does not believe the industry environment is improving.
Trading immediately turned bearish, though the Dow almost recovered in the final minutes of the session.
A number of lenders have gone bankrupt nationwide in the wake of the slump in the U.S. housing sector and the subprime meltdown, with more than 38,0000 workers in mortgage lending institutions being shown the door so far this year, according to the Associated Press.
