Wall Street Limps Out of August, Bracing for a Bruising Fall

NEW YORK - The stock market closed its worst August in years with a shudder, and with trading desks dark for Labor Day, Wall Street's veterans are bracing for what has historically been the cruelest stretch of the calendar.

The Dow Jones industrial average fell 4.3 percent in August, including a 240-point slide Friday on weak consumer-spending data. The Standard & Poor's 500 is down more than 16 percent from its October record, flirting with the 20 percent threshold that defines a bear market.

September and October carry their own folklore: the two months have produced the market's worst average returns, and this fall arrives freighted with a presidential election, a housing market still searching for a bottom and banks holding billions in mortgage assets nobody wants to value.

"Everyone's waiting for the other shoe," said a strategist at a Wall Street firm. "Fannie and Freddie, Lehman's balance sheet, housing prices — pick your shoe."

The Treasury's July backstop for mortgage giants Fannie Mae and Freddie Mac steadied markets briefly, but investors now assume the government will have to act before year-end.

There were pockets of optimism: oil's retreat from $147 a barrel and a modestly better-than-expected second-quarter growth figure of 3.3 percent, aided by the spring's stimulus checks and strong exports.

But with credit markets still impaired and unemployment rising, most forecasters expect the second half to be weaker. "The consumer is out of gas," one economist said, "and this time there's no home equity left to refinance."

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Associated Press writers contributed to this report.

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