Small caps turn down on gloomy econ after two days of rallies
Small-cap stocks turned lower at midday as slumping technology shares weighed on investor psychology and offset optimism over yet another new government credit facility aimed to encourage consumer loan activity. In addition, fresh economic data had a predominantly gloomy tone and the market may have been ripe for a breather following two days of dramatic advances. At 12:51 p.m. ET, the Russell 2000 (NYSE:IWM) was down 6.29, or 1.44%, at 430.50.
Yields on Treasury products were sharply lower this morning, which suggests investors are still risk averse, even after a two-day rally that rivaled anything seen since the bounce off the 1987 stock market crash. The yield on benchmark 10-year notes was off some 5.1%.
Looking at sector activity so far today, homebuilders were the best performers, followed by motorcycle manufacturers, industrial REITS, construction materials, managed health care, building products and Internet software services. The firm tone in various housing-related stocks was interesting given fresh economic data this morning showing that housing prices staged a record decline last month from previous year levels.
In other data news today, the GDP report came in as advertised, with a retreat of 0.5%, which puts the economy on the verge of an “official” recession, even though many market watchers argue the economy has already been mired in a recession for months on end. Interestingly, consumer confidence levels actually improved quite a bit more than expected, rising to 49.9, up from the forecast of 38.5 (but still low historically).
When the government isn’t outright giving taxpayer funds to big banks, they are continuing to build credit facilities to try and encourage lending activity and the latest products today included one for consumer asset-backed items (like autos, school and credit cards) and another for mortgages. Treasury Secretary Henry Paulson discussed these programs and the overall TARP progress in a morning press conference and dismissed questions about whether or not the government’s bailout programs had been effective, saying it was “naïve” to think the problem could be quickly solved.
Back to sector activity, the worst performers so far today came from home entertainment software, specialty stores, asset management firms, distillers and vineyards and department stores. Retailers were in rally mode Monday, but were struggling to stay in positive territory so far today, just a few days in front of the biggest shopping day of the year – “Black Friday” the day after Thursday’s Thanksgiving Day holiday in the United States.
Individual small-caps on the move today were highlighted by Lennar Corp. (NYSE:LEN), which gapped higher and soared some 52% as the second-largest U.S. homebuilder benefited from an analyst upgrade. Another homebuilder, DR Horton Inc. (NYSE:DHI) jumped 25%, riding the overall housing updraft today despite reporting larger-than-expected quarterly losses. On the downside, SkillSoft PLC (Nasdaq:SKIL) tumbled 20% as the e-learning software firm turned in a soft earning report card. Ulta Salon Cosmetics & Fragrance Inc. (Nasdaq:ULTA) tumbled 19% as investors backed away from the beauty retailer ahead of an earnings conference call this afternoon.
