MarketView for September 9

Summary

Stock prices fell sharply on Tuesday, sending the S&P 500 index to its worst day in one and a half years, as concerns over Lehman Brothers' ability to raise needed capital reignited fears about the broader financial sector. Shares of Lehman, the No. 4 U.S. investment bank, skidded 45 percent the largest decline percentage wise since Lehman went public in 1994. Fears over the investment bank’s survival essentially reversed Monday's optimism on the government's bailout of Fannie Mae and Freddie Mac.

Lehman's slide began on news that talks about a possible investment into Lehman from Korea Development Bank had broken down, and it continued after Standard & Poor's rating agency said it could cut the investment bank's credit rating.

Lehman shares ended the day down 45 percent at $7.79. The slide was marked by a surge in volume, with more than 300 million shares changing hands in composite trading, the largest volume surge since September 2002.

Other financial shares also fell. American International Group, the world's biggest insurer, which also has substantial exposure to the mortgage market, fell 19.3 percent to $18.37, making it a top drag on the S&P 500.

Energy shares also fell as oil prices dropped more than $3 a barrel to a five-month low, hit by news that Hurricane Ike would veer away from Gulf of Mexico production facilities. A $3 slide in the price of oil to $103.26 per barrel weighed on energy shares, with Exxon ending the day down 4.6 percent to close at $73.26. However, energy shares could easily recover on Wednesday as a result of late breaking news that OPEC plans to cut production by 512,000 barrels per day.

A report showing a steeper-than-expected decline in pending sales U.S. homes in July added to the negative tone. The National Association of Realtors pending home sales index, based on contracts signed in July, was down 3.2 percent to 86.5 from an upwardly revised index of 89.4 in June. Shares of home builders also fell as the euphoria faded over the federal bailout of Fannie Mae and Freddie Mac. Luxury home builder Toll Brothers dropped 8.4 percent at $24.26.

Caterpillar also took a hit on Tuesday, ending the day down 5 percent at $61.38. The firm is among the bellwethers whose fortunes hinge on domestic and overseas demand.

On NASDAQ, shares of Apple fell 4 percent to $151.68. CEO Steve Jobs on Tuesday introduced new iPod Nano and Touch music players. He also poked fun at reports of his alleged poor health, saying he's healthy but could stand to gain 10 to 15 pounds.

Pending Home Sales Fall

Pending home sales fell more than expected in July as the housing market's struggles continue, the National Association of Realtors reported on Tuesday. According to the NAR, its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4. The index was 6.8 percent below year-ago levels.

Home sales are considered pending when the seller has accepted an offer, but the deal has not yet closed. Typically there is a one- to two-month lag before a sale is completed.