Stocks falling on credit worries
The Russell 2000 (NYSE: IWM) and the Dow are falling on more fears of losses in the credit markets. At 2:17 p.m. the small-cap index was down 6.07 points, or 0.77%, to 779.96. The Dow Jones Industrial Average (INDU) had shed 77.71 points, or 0.59%, to 13,001.37.
Trading was choppy but stocks generally stayed above the flat line until the bears took charge around 12 p.m. ET on news that residential mortgage lender Thornburg Mortgage Inc. (NYSE: TMA) has sold more than 35% of its mortgage-backed securities, over $20 billion in total, and reduced its borrowing in order to minimize risk.
The Santa Fe, N.M.-based company is the latest example of mortgage lenders experiencing difficulties financing their operations as institutional investors turn a cold shoulder to mortgage-backed securities in the midst of a slumping U.S. housing sector and a higher level of delinquencies and foreclosures.
With stocks looking volatile and the outlook murky, investors are opting for government bonds. Consequently, the yields on U.S. Treasury bills are declining. The yield on the 2-year Treasury bill has fallen to 4.083%, its lowest level in more than one year, below its close of 4.185% on Friday, August 17.
This morning stocks were carried by the momentum of the U.S. Federal Reserve’s decision on Friday to cut in the discount rate to 5.75% from 6.25% in order to stabilize money markets and responded positively to news that home improvement retailer Lowe’s Companies, Inc. (NYSE: LOW) reported a 9% rise in second-quarter profit, outpacing Wall Street’s projections.
Separately, the price of oil has fallen about $1.50 to $70.50 a barrel on news that meteorologists expect hurricane Dean to miss the U.S. coast and make landfall near Tampico, Mexico.
