It was another interesting week on Wall Street. Two weeks after the financial meltdown in Asia triggered a 3.5% drop in the S&P 500, the markets took another 2% hit Tuesday. What was at the root of Tuesday's step down? It appears to be the demise of subprime lenders.
U.S. lenders specializing in making loans to high-risk borrowers have been struggling with rising defaults and foreclosures on home mortgages as home prices began to fall in the past year after interest rates rose in 2005. The Mortgage Bankers Association reported delinquencies rose in 49 states and among all loan types in the fourth quarter of 2006, the steepest increase in defaults was seen in subprime adjustable-rate loans.
Accredited Home Lenders (Nasdaq: LEND) was the market's biggest loser on Tuesday as it took a 65% freefall possibly placing it in the same dire straits as many of its risky loan applicants. But New Century Financial (NEWC) wins the subprime nosedive prize falling from a 52 week high of $51.97 last May to a low of $0.65 on Wednesday. Always on the lookout for low prices, retail behemoth Wal*Mart announced today that it was entering the banking business.
Stocks remained flat on Thursday as former Fed Chairman Alan Greenspan warned problems in the subprime market could spread into other sectors. Today's market is down slightly as market participants try to digest a mixed diet of economic news. Traders see a lot of volatility ahead of the Federal Open Market Committee (FOMC) meeting. Conventional wisdom is telling us the Fed will leave rates unchanged.
But some of the biggest news for markets this week had less to do with shaky lenders and more to do with letters. The Nasdaq Stock Market announced this week that it will now accept ticker symbols of one, two, or three letters in addition to its traditional four letter requirement. This puts direct pressure on the NYSE which often benefited from Nasdaq's four letter requirement.
Corporations often see their stock symbols as an extension of their brand and generally loath the idea of changing it to move to the Nasdaq. With this barrier out of the way, the NYSE may see some companies marching off their auction trading floor and into Nasdaq's electronic frontier. Is this a teachable moment for SMG students? You bet it is.
In The Teacher Support Center there are two lessons "Identifying Tickers and Interpreting Stock Quotes" and "What is an Exchange/Market?" that serve as a great connection to the recent Nasdaq announcement. The "Identifying Tickers" lesson not only addresses one of the biggest issues students have while participating in the SMG - finding the right ticker symbols, but it also reviews the financial information included in a stock quote. In the "What is an Exchange/Market?" lesson, students learn the differences between the NYSE, Nasdaq, and AMEX and will be able to draw conclusions as to whether the exchange on which a stock is listed impacts their SMG trades.
This article was written by a staff member of The Stock Market Game.