Same News, Different Day For Wall Street

Bad subprime news is nothing new, but, even after months of awareness, reminders of it have yet to lose their sting.

After opening low, the Dow Jones industrial average closed down 1.1%, or 143.39 points, to 13,305.47, and the Standard & Poor’s 500 index was down 12%, or 17.13 points. The Nasdaq Composite index, a traditional measure of technology stocks, was down 0.9%, or 24.29 points, to 2,605.95.

According to research analyst Mike Stelmacki, for the most part today’s trading performance is a reflection of the market giving back some of the gains it had made on Tuesday.

Mike added that, “pretty much all of the big moves we’ve had recently are related to the subprime issues, that continues to plague the markets as it proves it isn’t quite over.”

Although the National Association of Realtors announced on Wednesday that pending sales of existing homes fell in July to the lowest level in almost six years, the declines during the day have more to do with Citigroup lowering its third quarter estimates for Lehman Brothers and Morgan Stanley as well as Lehman Brothers’ view that European investment banks are also going to experience a hit on their earnings.

“Primarily you have sort of continuing headline risk—as soon as someone comes out and says something on the subject, it reignites the flame for some people,” Mike said.

For the S&P 500, financial and telecommunication stocks were being hit the hardest, although Rueckert noted AT&T and Verizon which fell 1.4% and 1.7% respectively, effectively comprise 75% of the sector.

Mike pointed out that because financial stocks “by far carry the largest amount of weight in the index,” their fall can also influence the index’s performance.

“I’ve been maintaining that this is going to continue at least until we see earnings from financial companies which comes in two weeks,” Mike contended, “because that will give a strong indication to people about what’s going on.”

Continuing, he said “I think that’s going to be the turning point, whether it’s going to be up or down I’m not sure.”

Although financial companies like Citigroup closed down 2.6%, energy companies like Exxon Mobil and Chevron finished with barely a drop, as they only fell 0.01% and 0.4% respectively.

There were other developments on Wednesday, including the Federal Reserve's release its Beige Book, which describes economic conditions in regions around the country. Wall Street could be disappointed if the Beige Book’s findings don’t help make the case for a rate cut, which Wall Street has hoped for.

Macroeconomic Advisers also announced on Wednesday the smallest increase in non-farm private employment since June 2003.

In another development, the U.S. economy will slow sharply this year and fall behind growth rates in most of the world, according to forecasts in a U.N. report released Wednesday.

Woes in the housing market will drag U.S. gross domestic product for 2007 to a modest 2% growth, compared with 3.3% last year, the U.N. Conference on Trade and Development said in its flagship annual report.

For the first time since 2001, both the European Union, at 2.8%, and Japan, 2.3%, are predicted to have higher gross domestic product growth than the United States.

China, at 10.5%, and India, 8.5%, should experience economic growth rates similar to the last three years, the report said.

Global growth, meanwhile, is pegged at 3.4%, down from 4% in 2006, largely because of the U.S. slowdown, the report said.

For now, the world economy is going through a "golden period," Supachai Panitchpakdi, the former World Trade Organization chief now heading the U.N. agency, told reporters in Geneva.

High commodity prices continue to boost growth in developing countries, which accounted for a 37% share of global trade last year, the report said. A decade ago their share of trade was 29%.

Economies in Africa are predicted to grow by 6%, Latin America and the Caribbean by 4.7%, and ex-Soviet bloc states still outside the European Union by 7%.

"There might be some downward revision," Supachai said.

"All this depends on the degree of adjustments coming out of the U.S. economy," he said. Further economic turmoil from risky lending practices—like subprime mortgages for borrowers with weak credit histories—was possible, Supachai said.

The Associated Press contributed to this article.