This week Wall Street started off with stocks falling sharply lower, with financials worries coming back to haunt investors as reports of more losses at Lehman Brothers and of a bail-out for mortgage giants Fannie Mae and Freddie Mac.

The Dow Jones Industrial Average fell 180 points or 1.5% to 11,479 with all of its 30 components falling, the biggest drop since Aug. 7. It is still 4.7 percent from its July 15 low of 10,962. The S&P 500 Index lost 19.60 points or 1.5% to 1278.60. The S&P financial sector was the worst performer; down 3.6%. The Nasdaq Composite was also down 35 points, or 1.4%, to close at 2,416.

Shares of both Fannie and Freddie fell sharply, with the former down 22% and the latter down 25%. Besides Fannie and Freddie, other financials also sold off. Lehman was lower on reports it could lose $1.8 billion during the quarter.

However there was a substantial increase in the options market volatility. The CBOE Volatility Index (VIX) has spike up 7.2% to close at 20.98, increasing in market fear.

Inflation and housing data are critical as it could determine the stock market’s direction today as the worry may continue over the financials. The July PPI is expected to report an increase of 0.5% at 8:30 a.m together with the housing starts and building permits.

Companies reporting earnings before market open include Home Depot, Saks and Target. Hewlett-Packard reports after close. It is judgment day for these companies as investors are waiting to put money in or to take them out for better performing companies.

“Speculation is an effort, probably unsuccessful, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little” - Fred Schwed, Jr.

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