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The market started the new week in a weak tone. For the second time in the last three sessions, the Dow dropped more than 200 points. The Nasdaq lost 46 points while the S&P 500 gave up 1.9%. There was little economic news scheduled to be released. In late afternoon, Treasury Secretary Paulson along with the largest four banks announced a plan for issuing covered bonds, which are similar to traditional asset-backed securities but would be kept on the issuers’ balance sheet. However, since the details of the plan were not revealed and there is also no clear timetable for implementing the plan, investors more or less ignored the news. A rebound in crude price was not seen as friendly to the market sentiment either.
Financials and consumer cyclicals were among the biggest losers for the session. Apparently investors were still concerned about the health of the financial sector and were unwilling to commit new capital to the beaten down sector. Basic materials and energies, on the other hand, had a rebound today after being beaten down for the most part of the month. The CRB commodity index also rebounded fractionally, avoiding a 5-day losing streak. The US dollar was mixed against the most major currencies. Treasuries rallied across the board due to typical flight to quality trade. The VIX index jumped more than 5% and closed above 24. However, it remained too low to trigger any capitulation rally. The market breath was negative on both NYSE and Nasdaq with moderate volume.
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