JPMorgan said trading conditions have “substantially deteriorated” in the third quarter, and mortgage-backed securities and loans have weakened.

The New York-based bank also has substantial exposure to credit cards and other consumer debt that looks increasingly vulnerable as the nation’s economy grows slowly.

The Financial Times on Tuesday said JPMorgan is under pressure to write down mortgage assets, in part because of Merrill’s decision to sell $30.6 billion of repackaged debt to a private equity fund at 22 cents on the dollar.

Shares lost 7% in today’s trading based mainly on this news. JPM’s customers are reliant on credit which hasn’t been forthcoming for many quarters. As liquidity has dried up in the mortgage assets market, more and more companies have been forced to write down assets, affecting profitability.

Stocks went from flat to higher early Friday after a stronger-than-expected reading on new homes sales for July. That followed a durable goods report that topped expectations.

“It’s really day-by-day with all this news,” said Nicholas Raich, director of equity research at National City Private Client Group in Cleveland, referring to economic data and concerns about faltering mortgages and upheaval in the credit markets. He said the latest economic readings boost a sense that the Federal Reserve isn’t likely to cut interest rates before its Sept. 18 meeting.

“Obviously the market is adjusting to that probably not occurring. There were fears just a few weeks ago that the U.S. housing woes were going to impact the global environment.”

Of course these sentiments are likely to change again soon. But for now, it looks as if the economy is weathering the storm and a global financial crisis is not likely to happen any time soon. For Wall Street today that translates into somewhat happy investors who are looking for bargains.