Mortgages Keep Pressure On Stocks
U.S. stocks fluctuated in early trading Wednesday, showing nervousness about faltering subprime mortgage lenders, which sparked a broad selloff in stocks Tuesday.
While futures moved lower Wednesday, they did not indicate the free fall would continue, at least at the opening of trading, despite declines of more than 1 percent in major stock indexes in Europe and Asia.
Investors sent a clear message on Tuesday: the beating the market took over the last two weeks isn't over yet, reports CBS News correspondent Susan McGinnis.
Tuesday's plunge followed a report showing more Americans falling behind on their mortgage payments, and more troubles in the "subprime" lending business, the companies that make loans to riskier borrowers.
"What happened was, you had some lenders that were really throwing caution to the wind in an effort to scoop up as much candy as they could," Greg McBride, senior financial analyst for Bankrate.com, said on CBS News' The Early Show. "They were approving borrowers without looking at their income, without regard to their debts relative to their monthly income, things like that. Those are really the ABCs of lending.
"Those borrowers and lenders are now paying the price," McBride said.
Concerns about soured loans appeared to widen Wednesday following an announcement by H&R Block Inc. after the closing bell Tuesday that it would increase its losses for the third quarter because of a $29 million writedown at its mortgage arm.
The nervousness over mortgage lenders pushed the Dow down by more than 240 points Tuesday to their second-biggest drop in nearly four years. The pullback resembled one seen two weeks ago that began in part after a nearly 9 percent drop in stocks in Shanghai and amid concerns about mortgages.
The Dow sits above its low for the year of 12,050.41 reached March 5 and remains above the 12,000 level, which it reached for the first time last October.
Wall Street will have a modest schedule of economic data and earnings from Lehman Brothers Inc. to perhaps offer a distraction from the concerns over subprime lenders.
"What we're seeing in the subprime mortgage market is a very small sector of the overall mortgage market. It's not something that's likely to derail a $13 trillion economy," McBride told Early Show co-anchor Hannah Storm.
The market expects the Commerce Department will report that the current account deficit narrowed in the final quarter last year to $203 billion from an all-time high of $225.6 billion in the previous quarter. The current account is the broadest measure of foreign trade.
The agency also plans to release import and export prices for February.
The Federal Reserve meets next week to set interest rates, reports McGinnis. For now, most analysts believe the Fed will leave rates alone. But should more hints of a weak economy show themselves, the speculation could grow that a rate cut could be on its way.