It was a brutal day for stocks as the euphoria from the Fannie and Freddie bailout dissipated in response to renewed concerns about weakness in the financial sector. The Dow dropped 280 points to close at 11,231.
Lehman Brothers Inc. (LEH) spooked the market when word spread that the troubled investment bank's negotiations with Korea Development Bank had stalled. Lehman has been aggressively pursuing additional capital in order to provide protection against deteriorating assets and strengthen its balance sheet. Lehman shares were down more than 40% on the day.
The downtrend in the overall market and financial sector was hastened by American Insurance Group, Inc (AIG), as investors speculated that the world's largest insurer would also need to raise more capital to protect itself from exposure to mortgage related assets. AIG has already posted $20 billion in losses over the last three quarters and raised $20 billion in new capital.
On a more upbeat note, oil prices retreated below $104 for the first time since April as Hurricane Ike's trajectory veered away from sensitive, energy infrastructure in the Gulf. Also helping drive prices lower were comments from OPEC President Chakib Khelil, who insinuated that the organization will hold production at current levels. Crude dropped $3.08 on the day to close at $103.26 a barrel.
And finally, the dollar ended a solid 2-week run against the Euro in today's session, as financial sector weakness eroded confidence in the Greenback.
The Focus List
The Focus List portfolio saw declines in today?s bearish market, averaging a loss of 4.43% for the day.
The commodities sell off environment has weighed on commodities related Focus List holdings. While many of these stocks continue to offer great fundamentals, falling commodity prices has caused us to execute a few deletions from the portfolio today.
The indiscriminate selling in the commodity sector has hit CF Industries Holdings (CF). Given the current backdrop and a recent trimming of Q3 estimates, we locking in a gain on CF in the Focus List. We hope to add the stock back at a later date.
Earnings estimates have been cut by 3 out of the 10 covering analysts recently on ConocoPhillips (COP). We continue to like the valuation, but cannot justify holding onto COP given the current anti-commodity sentiment.
The indiscriminate selling that is occurring in commodity-related stocks is leading us to initiate a quick stop-loss on Fluor Corporation (FLR). The market is clearly ignoring the company s positive fundamentals right now. We hope to add FLR back at a later date.
Though we continue to like the fundamentals on Genco Shipping &Trading Ltd. (GNK), the indiscriminate selling in commodity-related stocks and a recent trimming of 2008 earnings estimates is causing us to close our position.
The indiscriminate selling that is occurring in commodity-related stocks is leading us to initiate a quick stop-loss on Metalico Inc. (MEA). The market is clearly ignoring the company?s positive fundamentals right now. We hope to add MEA back at a later date.
In order to maintain sound diversification, we did not completely close off exposure to commodities and held on to such names as Bunge (BG). Though, this pick was one of Tuesday?s bigger Focus List decliners, analysts remain bullish on the farm and fertilizer stock as evidenced by the higher forecasts for this year and next.
It was not all doom and gloom today. McDonald?s Corp. (MCD) was up 1.2% for the day as the fast food giant reported worldwide same-store sales surging 8.5% in August.
