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Market Recap: ISM Shocker, Stocks Drop


The ISM service index declined for the first time since 2001. Stocks tumbled.

Stocks dropped on economic woes. The Dow Industrials fell -370 points, or -2.93% to 12,265, the S&P 500 fell -44 points, or -3.20% to 1.336, and the Nasdaq Composite fell -73 points, or -3.08% to 2,309.

Stock futures fell prior to the opening bell on today's economic data. The Institute of Supply Management's service index showed a contraction at the fastest pace since the 2001 recession. The index dropped to 44.6 far below the previous months figure of 53.2 and below expectations of 52.5. Readings above 50 indicate growth with readings below signaling a contraction.

"A recently announced change in the composition of the index mistakenly led a few 'We're Out of the Woods' optimists to conclude that perhaps the numbers aren't as bad as they seem," said Professor Kevin Depew. "Well, everyone can run back into the woods, because they are as bad as they seem." For more on the data, read today's Five Things You Need To Know.

The financial sector suffered on the news as a result with a downgrade by Oppenheimer analyst Meredith Whitney further pressuring the stocks. Whitney, who correctly predicted that Citigroup (C) would cut its dividend, lowered the rating of banking bellwether Goldman Sachs (GS) from "outperform" to "perform," stating valuations would not be sustainable in a coming year. The financial ETF (XLF) tumbled -4.06% to $27.65. The big brokers led to the downside with Citigroup dropping -7.4% to $27.07. Lehman Brothers (LEH) fell -6.27% to $59.82, and Goldman Sachs dropped -5.45% to $189.86. Todd mentioned the financials in today's Random Thoughts.

In housing, some homebuilders were upgraded by Bank of America. KB Home (KBH), Pulte Homes (PHM) and Toll Brothers (TOL) were upgraded to "Neutral" from "Sell" by the research firm due to better affordability leading to greater demand. The analyst wrote in a note addressed to clients yesterday that "while we do not expect a spike in demand immediately, we expect that it will gradually improve over 2008." The news lifted the homies for a brief part of the trading day but those stocks finally succumbed to the selling pressure. TOL closed -2.15% to $21.87, PHM fell -3.22% to $14.75, and KBH dropped -5.77% to $24.65. The broader iShares DJ real estate index (IYR) lost -3.17% to $65.14.

Commodities declined again today. Crude fell -1.86 to 88.16. Gold fell -17.40 to 887.50. Silver fell -0.370 to 16.410. Copper declined -9.20 to 319.60.

"Many want to be a top picker [in gold], but they haven't gone back in history to see how gold was overbought and stayed overbought when it broke out to all-time highs," Professor Lance Lewis said, addressing the recent weakness in gold, "This is what commodities do, especially after 30 year trading ranges are exceeded."

For more summaries, check out Minyanville's Buzz Bits.

Idea Flow

Below is a recap of some of the idea flow on today's Buzz & Banter. Please note that stocks may appear in both bullish and bearish categories, due to long and short term trades by our many Minyanville professors.

Some bullish trade or investment ideas: WM, C, DRYS, GOOG, AAPL, RIMM, SMH, BRCM, DECK, HAL, BAS, DUG (inverse), Gold, Gold shares

Some bearish trade or investment ideas: UA, PCU, C, SPX, RTH, XLF, GOOG, YHOO

Happy Mardi Gras! See you in the morning!

No positions in stocks mentioned.

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