Stocks Fall; Fannie, Freddie Worries

123jump.com Staff
18 Aug, 2008
New York City

U.S. stocks fell on the worries that the two mortgage lending government agencies, Fannie and Freddie may need capital infusion and may wipe out shareholders. Merrill Lynch lowered its price target on Freddie Mac below $6. Financials and home builders fell sharply. Fannie and Freddie dropped more than 18%. Lennar, DR Horton and Toll Brothers declined more than 5%. Musharraf, the former dictator of Pakistan resigned to avoid impeachment charges.

[R]3:15AM New York – U.S. stocks dropped sharply after renewed worries related Fannie and Freddie kept financials in check.[/R]

U.S. stock market indexes fell sharply as financial stocks fell after traders focused on the weakness at Fannie and Freddie, two large government agencies. The U.S. Congress may b forced to recapitalize the two mortgage lenders at the expense of current shareholders. The view was first reported by 123jump.com in July of 2007, was echoed in an article published by Barron’s this weekend and a report from Merrill Lynch lowered the price target on Freddie Mac below $6 a share from $7.

Freddie Mac lost 21% or $1.20 to $4.64 and Fannie Mae declined $1.48 or 19% to $6.44.

Home builders fell on the renewed concern of the health of the two lenders with Lennar ((LEN)) dropping 7%, DR Horton declining 6% and Toll Brothers falling 5%.

Crude oil futures of the immediate delivery dropped as much as $1.50 a barrel before recovering as tropical storm approaches the Gulf of Mexico oil installations.

The Hershey Company ((HSY)) dropped 10% or $4.01 to $37.61 after it reported that recent price increase of 10% may hurt sales. The company also forecasted that commodities prices are likely to gain in 2009 at a faster rate than in 2008.

Lowe’s Earnings Decline 8%

The second largest home-improvement retailer Lowe’s Companies, Inc. ((LOW)) net sales rose 2.4% from a year ago to $14.5 billion and net income decreased 8% to $938 million or 64 cents a share from 67cents a share. The company estimated earnings in the third quarter to be between 27 cents a share and 31 cents a share.

The retailer guided same store sales decline between 5% and 7% in the third quarter and plans to open 38 new stores or increase sales square footage by 10%. For the year the company expects sales to rise 1% and comparable sales to decline between 6% and 7%.

BHP Hikes Dividend 49%

BHP Billiton jumped 2% in the UK trading after it reported second half profit to increase 30% on a sustained rise in demand from China. The mining giant increased its full-year to dividend by 49% to 70 cents a share. For the fiscal year ending in June 30 revenues rose 25% to 59.4 billion and earnings increased 14.8% to $15.4 billion.

Operating cash flow in the quarter rose 14% to $18.2 billion and return on capital employed surged to 37.5% despite a record capital investment. In the last three years the dividend has increased 150%.


Europe Markets Review
In London FTSE 100 Index closed lower 4.60 or 0.08% to 5,450.20, in Paris CAC 40 Index decreased 4.78 or 0.11% to close at 4,448.84 and in Frankfurt DAX index lower 13.14 or 0.20% to close at 6,432.88. In Zurich trading SMI decreased 4.53 or 0.06% to close at 7,231.40.