Stockbroker Stocks Flashing Warning Signal

If the stock market is going to start falling apart, one of the first places we’ll see a warning sign is from the price action of the stocks of the biggest American stockbrokers. And right now, those stocks are starting to tank.

Lehman Brothers, Morgan Stanley, Bear Stearns, Merrill Lynch, Goldman Sachs… a total of 14 huge American stock brokerage houses make up the widely followed Dow Jones U.S. Investment Services Index. That index plunged 2% yesterday. And some individual stocks fared worse. Bear Stearns dropped over 3% on Monday.

Why are the prices of the brokerage stocks starting to plummet? (Some of their individual stock charts easily illustrate price breakdowns.)

Sometimes, when it comes to investing, the question of “why” takes a second seat to simply following the trend as it develops. If the stock market starts declining, stock trading activity will soften and the brokerage houses will see less business. Maybe the market senses slower business is not too far away, explaining the weak price action of the brokerage stocks. (Do you mean Goldman could regret all those big bonuses it declared earlier this year?)


I’m watching the price action of the big stockbroker stocks very closely for my readers. This is only one of several indicators I see flashing a warning about the U.S. stock market right now. More on this for you as the story develops.

IMPORTANT NOTE — “What Two Stocks Tell us About an Industry, Possibly the Economy” was the title of my February 21, 2007 PROFIT CONFIDENTIAL column. In that article, I pointed out how the stock price of Countrywide Financial, the largest home lender in the U.S., was under price pressure. The stock was above $40 then. Yesterday, the stock plunged to $38.72! If the stock of Countrywide Financial continues to decline, it could be an foretelling sign for the U.S. lending business — more big trouble ahead. (Can someone please tell Alan Greenspan? He’s still giving lectures telling people the U.S. economy has escaped the wrath of the housing market.)

NEWSFLASH — Giant HSBC Holdings PLC has announced the head of its lending division for North America has resigned (sometime a nice word for “pushed out”). HSBC is Europe’s largest capitalization bank. The resignation came after HSBC significantly raised its forecast for bad loans in the U.S. into the billions — another indicator that the U.S. housing market is headed for a hard landing.

Michael Lombardi writes a short monthly newsletter discussing stocks and investments he is buying or thinking of buying. See more at