S&P Downgrade of Bear Debt, Jobs Report Drive The Action

“Bear Stearns is the fundamental issue [today]“.

– Joe Keating (subscription required), Chief Investment Officer, First American Asset Management

“Bear Stearns has a relatively high degree of reliance on the US mortgage and leveraged finance sectors, and its revenues and profitability would be especially affected if there were an extended downturn in those markets.”

– S&P (subscription required), explaining their downgrade of the outlook for Bear Stearns’s A+ rated debt from “stable” to “negative”

The focus on the credit markets gives the ratings agency a lot of power over the current direction of the market.  On Monday, S&P raised it’s outlook for Morgan Stanley’s debt – sending the financials and the whole market higher.  Today, they lowered their outlook for Bear Stearns’s debt – with exactly the opposite effect. 

The financials are taking it on the chin today, down 1.49% (XLF), taking the whole market with them.

In other significant news, early this morning the Bureau of Labor Statistics said the economy added 92,000 non-farm jobs in July.  This was less than economists were expecting raising fears that problems in the housing market are now effecting the job market.

Might we see another bout of panic selling at the end of the day heading into the weekend?  Fasten your seat belts.