GOIH Capital Markets: Dow down 300+

Stocks Stay Mired in the Red
By ANNELENA LOBBNovember 1, 2007 2:40 p.m.


Stocks posted deep losses Thursday afternoon, more than erasing a Fed-fueled rally the day before, hurt by a raft of bad news, including fresh credit-market jitters, a Citigroup downgrade and Exxon Mobil's below-forecast earnings.
The Dow Jones Industrial Average was recently down 216.15, or 1.6%, to 13713.86. The S&P 500 fell 23.74, or 1.5%, to 1525.65, and the Nasdaq fell 36.54, or 1.3%, to 2822.58. About 20 minutes after the opening bell, trading curbs were put in effect at the New York Stock Exchange.
The declines vaporized gains from a rally Wednesday afternoon, after Federal Reserve policy makers1 delivered a quarter-point rate cut. What changed overnight? Perhaps traders had time to mull the negative implications of the Fed trimming rates, a sign that central bankers are worried the third quarter's strong economic growth will fade. Investors may also have responded belatedly to the Fed's policy statement, which seemed to close the door on future rate cuts.
MARKETS ON THE MOVE
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• European Shares Close Higher11
• Asian Stocks End Mixed12
• Stocks Advance on Fed Rate Cut13
"I'm not sure the market wasn't caught up in the oversimplified premise that you're supposed to buy into the equity market when the Fed cuts rates," said Matthew Johnson, head of U.S. stock trading at Lehman Brothers. Now, "[there's] nervousness that there's another shoe to drop in the financial sector."
The central bank also injected $41 billion in liquidity into the financial system Thursday. Done in three operations, it amounted to the largest insertion of funds since the liquidity crisis took hold this summer. But economist Drew Matus, at Lehman Brothers, said the size and timing were "completely meaningless. The Fed is doing what's needed to keep the effective [rate] close to 4.5%."
Still, uncomfortable reminders of risks to the financial sector abounded. CIBC World Markets analyst Meredith Whitney downgraded Citigroup to "sector underperformer," saying the giant bank needed to raise more than $30 billion in capital through asset sales, a dividend cut, another stock float, or a "combination thereof." Citigroup shares fell 6.7%.
Like many other major banks, Citi's profits have been slammed by huge writedowns of mortgage-backed credit instruments on its balance sheet, after this summer's credit crunch reduced the value of many such assets or made them impossible to trade. After stabilizing recently, a key measure of such derivatives -- the ABX index tracking AAA mortgage bonds -- has fallen to fresh lows, the Financial Times reported this morning, potentially adding to lingering worries about the health of the credit market.
"These strange instruments don't trade regularly, and maybe they didn't write off enough," said Alfred Kugel, chief investment strategist of Atlantic Trust. "Merrill Lynch made an estimate two weeks ago and found out it wasn't really enough. This is such a complicated situation that it's very