According to the Commerce Department this morning, September sales of new homes dropped by 3.6%. September’s annual rate was 402,000 units, which was below the expected 440,000 annual units.

The average price for a new home was also lower, falling 9.1 percent on a year-over-year basis to $204,800. On the bright side, that is up 2.5 percent from August.

The housing market has been rebounding a bit lately, but things could turn around quickly should the current $8,000 tax incentive expire at the end of next month. It has been given credit for helping boost sales, but analysts are worried what will happen if Congress does not extend the program.

The DOW closed the day up 1.2%, while the NASDAQ put up a gain of 0.8% for the session.

Helping the market out today was news that new home sales in February jumped by 4.7%. While the current sales levels are running at close to record lows, it was encouraging for the market to see buyers start to come back into the market.

The day was erratic as investors continue to try to figure out which way the economy is headed. The past two week rally has brought some hope and confidence back into the market, but there are still many obstacles, and news today that the government was finding demand to be weak for some of its debt, raising questions about how easily it is going to be for Washington to raise the money it needs for all the recent spending announcements.

For now the market remains cautious and unsure of what is about to happen next.

As we know, the housing market has been a major drain on the overall economy, and the real estate market got some more bad news today as we learned that January existing home sales dropped by more than expected.

Several big names hit new fresh 52 week lows today:

• Pfizer (PFE)
• Las Vegas Sands (LVS)
• Nokia (NOK)
• Caterpillar (CAT)
• Boeing (BA)

We will see if the markets are able to pick up some steam tomorrow, but for now it looks like pessimism is still running wild on Wall Street

The DOW was down 1.04% today, the NASDAQ traded 0.5% lower, and the S&P dropped another 1.0% in today’s trading.

For the week, the DOW dropped a total of 5.2%, and is sitting at lows that we have not seen since back in November when fear was running rapid among traders regarding the future of the economy.

One thing that is keeping traders in a selling mode is the waiting game to see what version of the current stimulus package actually gets approved. In today’s news, the House of Representatives passed their version on the stimulus package, a $787 billion plan to boost the economy. The next step is to get the bill pass the Senate, which is expected to cast its vote later today.

President Obama was optimistic that the bill had made it through the House, and now awaits to see if the Senate will send him the bill for his approval next week.

In other news today, two of the big banks, JPMorgan Chase, and Citigroup announced that they were enacting a moratorium on new foreclosures until they see what sort of plan Obama announces to help ease the huge increases in foreclosures that are hitting the market. Both banks have suspended new foreclosures until the first part of March in hopes of easing the pain that many homeowners are currently dealing with.

The markets will be closed on Monday, so we will have to wait until Tuesday to see if the market can make up some of its recent losses.

Enjoy your Valentines Day, and your long 3 day weekend.

Going into this morning’s earnings report, analysts had been expecting to see the Atlanta based retailer to post earnings of 37 cents per share, but the company disappointed those expectations, with actual earnings of only 21 cents a share, on net income of $356 million. Sales dropped 3.4% in the quarter, mostly a result of a 6.5% drop in same store sales.

The main culprit being the weak housing market and rising gasoline costs that resulted in a 66% decline in profit for the company compared to the same period last year.

Frank Blake, chairman and CEO of Home Depot, stated that “housing and home improvement markets remained difficult in the first quarter… conditions worsened in many areas of the country.”

Shares of the stock are trading down by 2.8% in premarket trading, down $0.83 from yesterday’s close of $28.87.

Ironically, it was Bernanke himself that had initially put the markets into the red when he stated that there was a decent chance that the U.S. economy would contract during the first half of this year. With all the recession rumors and fears floating around these days, his comments earlier were enough to spook the markets into an early sell off.

Luckily, Bernanke testified in front of Congress that we should not expect to see any additional financial institutions collapsing the way we saw Bear Stearns go down last month. After hitting a massive liquidity crisis, Bear Stearns was forced to look for help, and was bailed out by the Federal Reserve, and JP Morgan which is in the process of finalizing its purchase of the company.

It is no secret that the past 6 months have been tough on Wall Street. The credit crunch, weak dollar, and collapsing real estate market have taken their toll, but we are starting to see some signs that traders are beginning to bet that the worst has come and gone. How long the recent rebound will last (if at all) remains to be seen.

There are three main factors contributing to the erosion of consumer confidence currently; falling stock prices, falling home values, and finally… the dollar setting record lows against the euro. It seems like everyday we turn on our televisions and are instantly fed more bad news regarding the overall economy, so it should really come to no surprise that confidence has suffered.

Housing prices are also in the news, as the S&P/Case- Shiller home price index fell 10.7% during the month of January. This comes on the heels of a 9% decline in December, and marks the 13th straight month that the index has fallen.

This month’s confidence numbers had been expected to drop, but not nearly as much as it actually did. Analysts had expected to see a drop from 75 to 73.5.

The market was initially heading into the red early this morning, but has rebounded in the afternoon session, and the major indexes are all up about 0.5% with a couple hours left in the day.

Ford Motor

Citigroup cited several reasons for the downgrade, and in addition lowered its price target on the stock from $7.00 down to $5.50.

Here a few of the reasons for the downgrade:

• low chance that the company is going to be able to maintain market share in 2008
• continued weak housing market will apply additional pressure to the company’s heavy-duty truck lineup
• worsening credit crunch in America to apply more pressure on the Ford Credit’s earnings stream

In the premarket, shares of Ford have not been beaten up too bad, with shares dropping 1.3%, down to $6.43. We will see just how hard Wall Street punishes the company once trading gets under way shortly.

Well, thanks for confirming what most of us already knew… record high oil prices and the severe housing slump are going to weigh on the American economy, and that an economic slowdown is on the way. The Federal Chief gave no signal though whether or not we can expect to see more interest rate cuts at the Fed’s next meeting.

The Fed finds itself in a tough situation right now. The stock market has been poor because of the weak financial sector and the problems coming out of the mortgage crisis. In order to help the market get back on track the Fed will typically lower interest rates, but at this point in time the Fed may not be able to lower them too much more because of the fear of inflation and pushing oil prices even higher than they currently are.

With oil testing the psychological $100 barrier, many experts are also starting to wonder just how hard an impact these rising energy costs will be felt by corporate America.

Definitely some tough times ahead, and on top of it all the dollar continues to trade at all time lows against the euro. Yes, Bernanke, the economy is in danger of a dreaded recession… it is time to figure out what to do and do it now, assuming that you haven’t waited too long as it is!

According to the Labor Department this morning, American employers added twice as many new jobs as analysts had expected. Analysts had expected to see an increase of 85,000 payrolls during October, but the market was delighted to see an actual rise of 166,000 for the month. This is good news, and may help the market forget about the dreaded “R” word for a while (recession).

Housing is still weak, which many fear will push the country into a full blown recession, but with strong payroll months in both September and now October at least we have reason to hope a recession will not overtake the country.

The jobless rate remains at 4.7 percent.

What do you think? Is America headed towards a full blown recession, or can the Fed avoid one through more interest rate cuts?