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Courtesy of David Brown, Chief Market Strategist, Sabrient
After the market gained in 7 of the 8 trading days following August 19, we have been met with 3 consecutive down days wiping out about half of our gain (about 5% at today’s close).
The financial sector has brought us down because of European bank concerns combined with the effects of the Federal Housing Finance Agency filling several new massive lawsuits against 17 large banks including BAC, GS, JPM, C, and WFC.
Meanwhile, the earlier $8.5B settlement formerly settled by BNY Mellon, representing a number of similar litigations, is being challenged by a host of unhappy recipients.
The most significant other litigation includes a suit by state attorney generals against more or less the same group. The potential losses could well exceed $20B and perhaps exceed the reserves established by the group.
Perhaps Warren Buffet’s purchase of $5B of preferred stock in BAC is the beginning of a solution for the large banks that may not bode well for the common shareholders of the subject banks (since they will be the last to receive company assets), but it could possibly provide enhanced settlements with the large block of litigants. In any event it is a major question mark hanging over much of the financial sector.
At its worst point in the last three days, the financial sector fell 10%. The Euro (FXE) fell about 3% in the same period chiefly due to concern about the stability of European banks and currencies.
Facing a $9.2B deficit, the United States Postal Service is considering laying-off 120,000 workers. However, that is not their only alternative as they have a surplus in their retirement fund and are requesting emergency funding from Congress.
Aside from the crisis in the banking world and the possibility of a post-office lay-off, more news has contributed to the three-day fall. Consumer confidence hit its lowest point since 2009 last Tuesday at 44.5 versus an expected 52 and its prior month value of 59.2 (anything less than 50 represents a lack of confidence by consumers). Last week, jobless claims, in both the private and public sectors, were a bit worse than expected while unemployment remained at 9.1% with essentially no job growth over the past few months. Housing sales and construction spending were…
