Stocks going down
The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) are falling following negative news from the financial sector.
At 10:12 a.m. ET the small-cap index was down 1.23 points, or 0.16%, to 786.09. The Dow had retreated 48.61 points, or 0.37%, to 13,240.68.
The bears have taken center stage on news that investment bank Lehman Brothers Holdings Inc. (NYSE: LEH) has cut the third-quarter and second-half earnings forecasts of four of the five largest securities firms due to problems in the credit markets following the subprime meltdown.
Goldman Sachs Group Inc. (NYSE: GS), Morgan Stanley (NYSE: MS), Merrill Lynch & Co., Inc. (NYSE: MER) and The Bear Stearns Companies Inc. (NYSE: BSC) will be negatively impacted by turmoil in the credit and asset-backed and mortgage markets during the third quarter, according to an analyst at New York-based Lehman Brothers.
Many financial institutions that have invested in securities backed by subprime mortgages have been hurt this summer due to the ongoing slump in the U.S. housing sector and the rising number of delinquencies and foreclosures.
In economic news, U.S. gross domestic product increased at a seasonally adjusted annualized pace of 4.0%, the U.S. Commerce Department reported before the start of trading. That’s higher than the government’s previous estimated growth of 3.4% but below economists’ projected increase of 4.1%.
Nevertheless, that’s the strongest three-month economic growth since the first quarter of 2006.
Exports rose 7.6% while imports fell 3.2%, contributing to the period’s solid economic growth.
Business spending also helped, increasing 11.1% during the second quarter, compared with just 2.1% during the first three months of the year.
However, consumer spending, which accounts for about 70% of economic activity, increased just 1.4%, below the first-quarter’s rise of 3.7%.
The second quarter measures the period between April and June, before the credit squeeze took hold and financial turmoil rocked markets.
