Stocks lost ground today as investors were worried that the probability of an economic recession was rising with disappointing economic data. The Dow Jones Industrial Average was lower the entire day and finished down 143 points. The Nasdaq closed down by 24 points and the S&P 500 finished down 17 points.
The news of the largest ever drop in pending home sales shook the markets, as 
participants worried that this housing drop may be farther from over than they first feared. The poor ADP jobs report also was a sign that the economy could be sliding faster than first feared.
Financials were once again the weakest sector in the market. Those with the perceived most exposure to the credit market crisis were the weakest. IndyMac Bancorp Inc (NYSE:IMB) led the sector lower, plunging by almost 10% on the day. Washington Mutual Inc. (NYSE:WM) fell by 3.5% on the day. Number one U.S. lender Countrywide Financial Corporation (NYSE:CFC) fell by 5.05%. Major brokers such as Bear Stearns (NYSE:BSC) and Lehman Brothers Holdings (NYSE:LEH) also fell today as analysts continued to cut their earnings estimates. BSC was lower by 4.54% and LEH fell by 3.74%, though both fell on very light volume.
Retailers were very weak on the day as traders sold off those stocks who are most dependent on the consumer. Sears Holdings Corporation (NASDAQ:SHLD) dropped by 4.48%, while JC Penney Company Inc. (NYSE:JCP) fell by 2.44% on the day. Specialty retailers Aeropostale Inc (NYSE:ARO) and DSW Inc. (NYSE:DSW) were lower by 6% and 7.3% respectively.
Although not all technology was strong there were some pockets of strength in the tech sector today. eBay Inc. (NASDAQ:EBAY) rose by 1.85% as the internet sector showed some impressive strength on such a strong down day. Google Inc. (NASDAQ:GOOG) rose by 0.50% on the day. Baidu.com Inc. (NASDAQ:BIDU) rose 1.28% today and actually hit a new 52 week high.
I personally would not read too much into today's action on the major exchanges. The fact is we were due for a down day after the recent gains. It will be more important to see how these next two days go and whether the bulls or the bears can establish a true short-term direction for market. In my opinion it will be up to the FOMC on September 18th to set the direction for the market, but there is liable to be a lot of jockeying before that point. The markets will continue to be on the lookout for any economic data which could hint at which way the Federal Reserve will go.
I think the prudent thing to do right now is to wait and see where this market is heading and what the economic data tells us. The all important nonfarm payrolls will be getting a lot of attention on Friday morning, and could set the tone for Friday's trading.
Pay attention to how stocks react to economic news right now, because understanding how they react to negative news is important in knowing if the bottom has been hit yet or not.
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