Investment and Commercial Banks Drag Down Market


Whereas the previous two weeks (June 4-8 and June 11-15) were all about rising interest rates, this week was all about the blow up of two Bear Stearns hedge funds with heavy investments in subprime mortgage bonds.  Fear that other investment banks have exposure to these subprime mortgage bonds plus all the subprime loans on the books of commercial banks sent the financials reeling this week and especially today. 

With financials being by far the biggest component of the S&P 500, making up 21.6% of its market cap, when financials get hit so does the whole stock market.  This chart of the S&P 500 and the S&P Financial Sector (XLF) tells the story.

Here’s the damage for today:

Dow: -1.37%

S&P 500: -1.29%

Nasdaq: -1.07%

S&P Financials (XLF): -1.27%

Goldman Sachs (GS): -1.98%

Morgan Stanley (MS): -3.08%

Merrill Lynch (MER): -3.23%

Lehman Brothers (LEH): -3.31%

JP Morgan (JPM): -2.25%

Bear Stearns (BSC): -1.41%

Barclays (BCS): -1.99%

Citigroup (C): -2.33%

Bank of America (BAC): -1.88%

Wells Fargo (WFC): -1.71%

Wachovia (WB): -2.41%

Washington Mutual (WM): -0.93%

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