Global Financial Markets: Investment Markets Services

If withering U.S. financial stocks were the biggest source of concern for global markets on Tuesday morning, they appeared to be the biggest source of inspiration by noon: In a stunning turn around, the S&P 500 financials index reversed a severe decline of about 7 per cent and rebounded slightly into positive territory after the bottom fell out of the energy market.

Among the biggest movers, First Horizon National rose 32.9 per cent, Washington Mutual Inc. rose 24.5 per cent, MBIA Inc. rose 21.6 per cent and Lehman Brothers Holdings Inc. rose 12.8 per cent. All four stocks were among the most battered until the rebound began.

Not all financial stocks were lifted in the relief rally, especially the two mortgage finance companies at the centre of the current concern over the U.S. financial system: Fannie Mae was down 20.6 per cent and Freddie Mac was down 22.2 per cent.

As well, major indexes remained under water, thanks to declines in other sectors. The Dow Jones industrial average fell 55 points, to 11,000. The broader S&P 500 fell 13 points, to 1213. Financials were up 0.8 per cent. But energy stocks fell 2.7 per cent and materials fell 1.8 per cent.

In Canada, the rebound in U.S. financial stocks brought little relief to the S&P/TSX composite index, which is suffering from its own concerns: plunging crude oil. The benchmark index fell 378 points, or 2.8 per cent, to 13,364. This puts the index on track for five triple-digit losses so far in July.

Oil fell to $137.80 (U.S.) a barrel, down $7.38 (and down as much as $9.26 a barrel earlier) – a record drop in dollar terms – after investors revisited concerns that a slowing global economy will translate into lower demand for energy. Ben Bernanke, in prepared comments before the Senate Banking Committee, underlined these concerns in remarks that suggested there are more risks to U.S. economic growth.

Canadian energy stocks fell 3.7 per cent. In particular, Suncor Energy Inc. down 5.8 per cent, EnCana Corp. down 3.4 per cent and Canadian Natural Resources Ltd. down 3.5 per cent.

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