NEW YORK — Wall Street retreated Monday after Fannie Mae and Freddie Mac fell to their lowest levels in nearly 20 years on concerns that the government might need to bail out the mortgage financiers. Weakness in the overall financial sector sent the Dow Jones industrial average down more than 180 points.
Investors were again uneasy about the health of financial companies after media reports of further problems in the sector.
Barron’s said the U.S. Treasury might have to bail out government-chartered Fannie and Freddie, which, the weekly noted, would likely wipe out shareholders’ equity in the companies.
Meanwhile, The Wall Street Journal, citing unidentified sources, reported that Lehman Brothers Holdings Inc. might surprise Wall Street with weaker-than-expected third-quarter results.
The bad news about financials wasn’t a surprise, but it nonetheless depressed a market in need of concrete signs that banks and brokerages can put the year-old credit crisis behind them and return to significant profit growth.
Even neutral news about the housing market couldn’t ease Wall Street’s mood. The National Association of Home Builders’ monthly index on the housing market remained flat at 16 in August. That met the expectations of economists surveyed by Thomson Financial/IFR.
Todd Leone, managing director of equity trading at Cow en & Co., said the worries about Fannie and Freddie dominated market sentiment in an otherwise light day.
“It’ll be one of the slowest days of the year, and I think it just kind of fed into itself,” Leone said of the effects of very light volume and the unease over the mortgage companies.
The Dow Jones industrial average fell 180.51, or 1.55 percent, to 11,479.39. The Dow had been down about 225 points at its lows of the session.
Broader stock indicators also declined. The Standard & Poor’s 500 index fell 19.60, or 1.51 percent, to 1,278.60, and the Nasdaq composite index fell 35.54, or 1.45 percent, to 2,416.98.
Oil prices declined after briefly jumping above $115 per barrel as Tropical Storm Fay approached Florida, but the storm appeared unlikely to disrupt installations in the Gulf of Mexico. Light, sweet crude fell 90 cents to settle at $112.87 a barrel on the New York Mercantile Exchange, after rising as high as $115.35.
John Merrill, chief investment officer at Tanglewood Wealth Management, said investors are realizing that the financial-sector troubles aren’t likely to soon disappear.
“The degree and depth of what’s happening in the financial industry is beyond anything we’ve seen in decades, and it takes time to get your arms around the severity of what’s happening and what the long-term and short-term ramifications are,” he said.
