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Stocks fell further after commentary from the Federal Reserve failed to confirm thoughts of a rate cut ahead, adding to bearish sentiment that came along with a drop in home prices and consumer confidence. Investors were disappointed about the fact that there wasn’t even a small minority seeking a shift to a neutral policy stance, let alone an aggressive approach to dealing with the brewing credit crisis.

Today, the Dow Jones industrial average closed down 280.28 or 2.1% to 13,041.85, the broader S&P 500 closed down 34.43 or 2.35% to 1,432.36, and the tech-fueled Nasdaq Composite closed down 60.61 or 2.37% to 2,500.64.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by 7 to 1 on volume of 1.4 billion shares. On the Nasdaq, decliners topped advancers by 4 to 1 on volume of almost 1.6 billion shares.

While stocks were already vulnerable, as investors eyed reports that showed a big drop in new home sales, weaker consumer confidence and more problems for the financial sector. The release of the minutes from the last Fed meeting added fuel to the fire. This showed that at the time, the bankers were not overly worried about the impact of the sub-prime and credit market turmoil on the economy. Although, the Fed did state that if the economy should deteriorate, it was prepared to cut rates. The next big event will be Fed chair Ben Bernanke’s comments Friday from the annual economic symposium in Jackson Hole, Wyoming.

July existing home sales report showed that home prices fell 3.2% in the second quarter versus a year ago. A separate report showed consumer confidence slumped in August to a nearly 2-year low, reflecting a brutal summer on Wall Street in which stocks slumped amid worries about the credit and mortgage markets and oil prices surged.

Shares of State Street closed down $2.63 or 3% to $61.25, on reports that the money manager has exposure to $22 billion of asset-backed commercial paper conduits, the kind of assets that have hurt European rivals recently.

Stock of European bank Barclays closed down $2.14 to $46.80, on reports that it may have exposure to several hundred millions of dollars of failed debt. However, Barclays has denied this.

Shares of MedcoHealth Solutions closed down $0.88 to $85.23, after stating that it will buy PolyMedica for $1.5 billion. Stock of PolyMedica closed up $6.40 or 14% to $51.69. Medco currently manages more than $6.5 billion in drug spending for its 2.8 million patients with diabetes. The PolyMedica acquisition is expected to add 1 million members.

U.S. light crude oil for October delivery rose 8 cents to $72.05 a barrel on the New York Mercantile Exchange.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter