Small caps flat on economic officials’ statements before Congress
Small caps remain mostly flat mid-session, as Fed Chairman Bernanke, Treasury Secretary Paulson and SEC Chairman Cox continue to testify before Congress on the $700 billion mortgage bailout plan.
While the Russell remains flat flickering out of the red and green, the general market is higher. At 12:12 p.m. ET the Russell 2000 (NYSE:IWM) was down 2.57, or 0.36%, to 717.87, while the Dow was up 57.59, or 0.52%, to 11,073.
Bernanke, Paulson and Cox all began testifying before the Senate Banking Committee at 9:30 a.m. ET. Mr. Bernanki and Mr. Paulson continue to emphasize the urgency of passing this plan, as well as outline details of the plan and dire consequences that could result should Congress opt not to pass the bailout.
“Over these past days, it has become clear that there is bipartisan consensus for an urgent legislative solution,” Mr. Paulson said in Congressional testimony. “We need to build upon this spirit to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don’t have broad support.”
The plan, in which the government would take ownership of all toxic mortgages from affected banks’ balance sheets, effectively rids banks of the poison that has thwarted their operation and enables them to begin shoring up their financial positions to begin lending again. Recent reception has been hostile by certain members of congress. The two most contentious areas include limiting executive compensation and amending the bankruptcy law to allow judges to change the terms of the toxic mortgages. One area of agreement is broader congressional oversight and taking equity stakes in firms which partake in the rescue efforts.
If this plan were accepted the toxic mortgages would be gone from banks’ books; however, the country must still grapple with a grim housing market with a glut of inventory, a slowing global economy, shaky corporate earnings and most likely higher inflation down the road sans rate hikes.
Today continues to be a day of waiting and listening. Some investors are concerned the plan could get hung up in Congress’ halls, while others worry about the ultimate price tag and most still remain curious about many of the plan’s details.
In the mean time, President Bush reassured global leaders at a meeting at the United Nations that the United States is on solid footing economically and that there is a plan in the works that will solve America’s banking crisis.
In its latest efforts to further shore up ailing banks, the Fed loosened the rules surrounding the ability of buyout shops and private investors to take stakes in them. This is a testament to the level of apprehension regulators have about banks’ liquidity positions.
Buried by the testimony, little attention has been paid to oil’s move. The commodity has continued to deflate marginally today after screaming $16 a barrel Monday. Mid-session oil is, down $1.44 a barrel to $107.93. Gold and the dollar, which both took a substantial clobbering Monday, are tamer. After sinking $43 an ounce Monday, gold is down $8 to $900 an ounce midday Tuesday. The greenback is gaining ground today and is up $1.4735 mid-session, compared with $1.4839 in the previous session.
In corporate news, Oppenheimer slashed its earnings estimates for Bank of America (NYSE:BAC), Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wachovia (NYSE:WB) and Wells Fargo (NYSE:WFC).
Bristol-Myers Squibb (NYSE:BMY) raised its buyout offer for biotech company Imclone (Nasdaq:IMCL) by $2 a share, or $2 million, bringing the total bid to $4.7 billion from $4.3 billion. Bristol-Myers already owns 16.6% of Imclone.
Lennar Corp. (NYSE:LEN) this morning reported its third-quarter loss narrowed from a year ago, as the homebuilder slashed costs; however revenue sharply dropped 53% amidst the housing glut.
In broader industry groups, platinum and precious metals, gold mining, and full-line insurance were gaining ground, while real estate, mortgage finance and home construction remain besieged.
In small-cap headlines, women’s retailer Cache Inc. (Nasdaq:CACH) this morning lowered its third-quarter guidance, as homecoming dress season proved weaker-than-expected. The company also lowered its fourth-quarter and full-year guidance in the face of a soft economy that is expected to continue. Shares slipped 16%.
Shares of Downey Financial Corp. (NYSE:DSL) jumped some 20% after stating after Monday’s close that it appointed Charles R. Rinehart, as Chief Executive Officer of the company and Downey Savings and Loan Association, F.A. Mr. Rinehart, who has also been appointed to the Board of Directors of each entity, will succeed Downey's interim CEO, Thomas E. Prince.
Shares of Chico’s (NYSE:CHS) are down some 14% after PiperJaffray downgraded the women’s retailer to “neutral” from “buy” on account of weak traffic and higher discounts.
