The week started off with light trading on the U.S. stock markets as concerns over the state of the financial sector in general were exacerbated by the fact that American International Group (AIG) fell to a thirteen year low. Persistent credit worries and apprehension with regard to global economic growth are also believed to have had a negative affect on trading, with major indexes losing around two percent and the Dow average falling by close to 250 points.

Of the thirty stocksthat make up the Dow Jones Industrial, the world’s largest insurer, AIG, was the sharpest decliner, falling 5.5 percent, or $1.09, and closing at $18.78. This is seen as a direct result of a Credit Suisse analyst cutting his price target on the insurance giant, as well as forecasting steep losses for the third quarter. The negative outlook for AIG was compounded by the warning issued late Friday by credit rating agency, Fitch Ratings, that they are considering cutting AIG’s ratings.

In addition to the decline in the Dow index during Monday’s trading, the Standard & Poor’s 500 index declined to 1,266.84, being 25.36 points or 1.96 percent, and the Nasdaq composite index fell to 2,365.59, being 49.12 points or 2.03 percent.

Banks and other financial institutions are suffering the negative impact of increasing numbers of homeowners falling behind in their mortgage payments. Additionally, the number of unsold properties hit a record high in the month of July according to a report issued by a trade group representing real estate agents.

Another factor regarding the financial sector which is a cause for investor concern is the decision taken on Friday by federal regulators to close Kansas-based Columbian Bank and Trust Co. As a result of significant losses sustained on real estate loans, this is the ninth failure of a federally insured bank this year. Furthermore, speculation regarding the future of the chief executive of Lehman Brothers Holdings and the investment bank’s continued independence are seen as factors contributing to its 6.7 percent, 96 cent fall, closing at $13.45.

JP Morgan experienced a 5.1 percent, $1.54 decline to $36.13 when the bank disclosed that the $1.2 billion preferred stock it holds in Freddie Mac and Fannie Mae has lost $600 million since the start of the third quarter. In contrast, the two government-supported mortgage companies experienced gains during Monday’s trading – Freddie Mac by 17 percent and Fannie Mae by 3.8 percent.

With many traders on vacation for the last week of August and the market in the nervous state it is in, analysts don’t expect any fireworks for the coming week. The general advice to investors continues to be to have a balanced portfolio and exercise patience, as the current negative situation simply cannot last forever.