Stocks tanked on Monday after a Barrons article over the weekend, raised questions about the financial state of Fannie Mae (FNM) and Freddie Mac (FRE). Raising fears that the government might have to bail out the two companies and wipe out shareholders in the process, the stocks of both companies fell to almost twenty-year lows, with Fannie Mae (FNM) closing at $6.15, down $1.76 and Freddie Mac (FRE) closing at $4.39, down $1.46.

The question now is whether we will continue to see downward pressure on the stock market today. We expect so, as if there is any validity to the Barrons article, then we should see more losses in the share prices of FNM and FRE.

Furthermore, we can probably expect earnings-related bad news from Lehman Brothers (LEH) and with the auction-rate securities issue taking on a life of its own and growing even with the announced settlement offers by Wall Street banks, there is more bad news in store from financial companies.  

Another pressure on stocks will come from the economic calendar. This morning at 8:30, we will be getting housing starts numbers for July from the Commerce Department, as well as the Producer Price Index for July as well, from the Department of Labor.

We feel very comfortable predicting that housings starts, without any adjustments or benefit of new regulations such as New York City put in place on July 1st, that skewed June’s numbers, will show a decline from June. PPI numbers probably won’t help either.