Small caps teeter on home sales number
Small caps opened lower on the session, as a disappointing existing home sales number created a cloud cover over famed investor Warren Buffett’s investment stake in now commercial bank Goldman Sachs (NYSE:GS).
At 10:22 a.m. ET the Russell 2000 (NYSE:IWM) was down 4.87, 0.69%, to 704.32.
The broader market applauded the Oracle of Omaha’s move, as it proved that there is confidence in the system and the decimated financial services sector. Buffett’s Berkshire Hathaway will invest $5 billion in Goldman Sachs by way of preferred stock. The deal could yield potential ownership of 10%.
“The stock market has been looking to see when Buffet would do a deal in the financial sector as a major sign that we're at the bottom,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “Stocks have moved up on the news. …”
Meanwhile, Fed Chairman Bernanke and Treasury Secretary Henry Paulson will testify for a second day before the House on their $700 billion bailout plan. Day one of testimony on Tuesday was greeted coldly by the Senate with skepticism on both sides. Lawmakers grilled the administration’s economic officials. SEC Chairman Chris Cox called for regulation of credit default swaps (a security that acts like insurance on a loan or bond), which were responsible for pushing Lehman Brothers over the edge and forcing AIG into regulators’ hands. Democrats were keen on enacting limits on executive compensation and on allowing the government to take equity stakes in firms who take federal aid.
While the battle rages on, few perceive that a bailout solution would collapse all together.
In economic news, existing home sales for August fell declined 2.2% to 4.91 million, down from 5.02 million in July, and slightly less than the 4.93 million economists were expecting. National Association of Realtors said home sales rose in the Midwest and South but fell in the Northeast and West, as tight mortgage credit curtailed activity.
Overseas, European stocks retreated on recession concerns and jitters surrounding the U.S. bailout plan and China’s market capped two days of gains. Though the Fed’s most prominent member remains on Capitol Hill today, the central bank, along with other foreign central banks, injected $30 billion into overseas money markets in an effort to generate liquidity for global markets.
Crude is creeping up $2.43 to $109.04 a barrel this morning, while gold is up $13 per troy ounce and the dollar is mixed against the euro and the yen. Treasuries are gaining with the two-year, 10-year and 30-year’s prices up, while yields — which move inversely to prices — are lower.
In broader industry groups, tires, mortgage REITs and industrial and office REITs are moving higher, while travel and tourism, autos and platinum and precious metals are losing ground.
In small-cap news, James River Coal Company (Nasdaq:JRCC) said it will offer 1.5 million shares, pushing the stock down 9%.
Specialty pharmaceutical company Medicis (NYSE:MRX) said today that it will have to restate its financial statements for the years 2003 through 2007 and the first and second quarters of 2008 due to the company’s misinterpretation of the accounting of sales return reserve calculations under GAAP. Shares swooned 17%
On the upside, Evergreen Solar Inc. (Nasdaq:ESLR) is up 13% after the solar company was upgraded by RBC Capital to “sector perform” from “underperform.” Solar stocks are seeing a boost after the Senate passed a bill that offers $17 billion in renewable energy tax incentives.
