Mild dip awaiting more rescue news
Small-cap stocks edged lower Friday, pulled down by the logjam in Washington as lawmakers were at loggerheads longer than expected putting together a rescue plan for the embattled financial arena. Still, a rally in the final hour of trading pared losses for small caps, and lifted the Dow into a solid gain. The Russell 2000 (NYSE:IWM) closed down 0.94, or 0.13% at 704.80 and is now down 7.9% for the year. Meanwhile, the Dow was up 1.10% Friday and is now off 15.9% for 2008; the S&P 500 was up 0.34% Friday and had slipped 17.3% so far this year.
The largest bank failure in history became official overnight as Washington Mutual Inc. (NYSE:WM) was seized by regulators and sold for $1.9 billion to JP Morgan Chase & Co. (NYSE:JPM). JPM shares rallied nicely on the news, gaining some 10% on the day. Normally, one would expect the largest bank failure in history to dominate the news landscape, but WaMu’s failure wasn’t all that much of a surprise, and stock in the company was already trading well below $2 coming into the session.
As for Washington’s $700-billion-dollar bailout of Wall Street, the “Paulson Plan” ran into more resistance than expected, especially from the Republican party. Although uncertainty about the final plan kept investors on edge, there seems little doubt that something will still be worked out fairly quickly — probably over the weekend.
The story within stocks for much of the day centered on the tech arena, with tech stocks taking a beating until the final hour of the session. Even the late rally still found the tech-laden Nasdaq 100 slipping 0.92% for the day. Within the tech front, key stocks like Research in Motion Ltd. (Nasdaq:RIMM) were taking a pounding; RIMM shares were off some 27% as the makers of the Blackberry warned that profits would miss the forecast. Also within techs, Apple Inc. (Nasdaq:AAPL) was off about 2.8%. There has been a hope building that passage of a financial rescue plan would free up clogged credit lines, spur investment and spark a nice recovery rally in tech stocks, so the delay in passage sparked a more response from that arena.
Broad market sectors on the decline Friday were dominated by commodity themes, with the iPath GSCI Index of commodity markets slipping about 0.8%. Crude oil prices were off $1.13 to $106.89 and copper tumbled about 2%, as traders fret about the economic picture in the U.S. and abroad. Speaking of the economy, the GDP report was revised lower to plus 2.8%, which fell far short of the forecast of 3.3%, and the Michigan sentiment survey came in just shy of the consensus at 70.3, vs. the forecast of 71.0. Even though sentiment has improved overall in recent weeks, it is still mired in levels that are in the “recession” zone, regardless of what GDP says about the economy. Looking ahead to next week, we’ve got several key economic reports on tap, highlighted by the big employment release Friday morning.
Within sector action today, metals and mining stocks were down, as were aluminum shares. Also attracting sellers were fertilizer stocks, coal companies, oil exploration, oil drillers, oil refiners and steel firms. On the plus side of things, casinos were the biggest draw, followed by financial services firms, footwear makers, consumer finance companies, REITS and asset management firms.
Individual small caps of note were highlighted by Perfumania Holdings Inc. (Nasdaq:PERF), which saw it’s market cap sliced by more than half Friday when the firm warned about the outlook. Transition Therapeutics Inc. (Nasdaq:TTHI) tumbled some 15%, sinking on unusually active volume to fresh move lows. Sadia SA (NYSE:SDA) slumped 36% after the Brazilian firm announced huge losses tied to Lehman Brothers Holdings Inc. (NYSE:LEH) and foreign exchange losses. Excel Maritime Carriers Ltd. (NYSE:EXM) said that the credit crunch was hurting the shipping business, and stock in the firm sunk 19%. On the upside, Silicon Graphics Inc. (Nasdaq:SGIC) rallied some 21% to the highest point since April.
The chart picture for the Russell 2000 was helped by the afternoon recovery back above “figure” support at 700. The overall chart structure is still top-heavy and it will be interesting to see if the market has a “buy-the-rumor, sell-the-fact” response to the financial rescue plan when it is announced. For now, the market remains in a very broad, volatile range but any slide back below 692 would favor the bearish side of things.
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