Bears dominate small caps
The Russell 2000 (NYSE: IWM) and the other major U.S. indices are falling following news of the emergency sale of Bear Stearns. At 1:55 p.m. ET, the small-cap index had dropped 13.52 points, or 2.04%, to 649.38. The Dow Jones Industrial Average (INDU) was off 84.75 points, or 0.71%, to 11,866.34.
Wall Street is in a very bearish mood on news that investment bank JPMorgan Chase & Co. (NYSE:JPM) has purchased Bear Stearns (NYSE:BSC) for just $2 per share, according to an announcement on Sunday.
The buyout was unprecedented, as the U.S. Federal Reserve gave JPMorgan $30 billion in special financing to complete the deal and prevent a domino effect that would have wreaked havoc on other major financial institutions and deepened the current turmoil.
The U.S. Central Bank also lowered its discount rate, the rate at which it lends funds to commercial banks, to 3.25% from 3.50%, on Sunday.
“It is a measure of the severity of the current financial crisis,” said Dr. Bob Webb, professor of derivatives, trading and fixed income securities at the McIntire School of Commerce at the University of Virginia, in an e-mail. “It is also an indication of how poorly past attempts by the Fed and other central banks to deal with the crisis have fared.”
The move affected the dollar, which fell to another all-time low against a basket of major currencies.
The Fed meets on Tuesday to discuss monetary policy, with observers forecasting a steep cut in its target federal funds rate, which currently stands at 3%.
Among the losers is small-cap Metabolix Inc. (Nasdaq:MBLX). Shares of the Cambridge, Mass.-based biotechnology company are down on news before the opening that an analyst has downgraded the stock to “hold” from “buy.”
Sterling Construction Company, Inc. (Nasdaq:STRL), which builds transportation and water infrastructure in Texas, was also downgraded to “hold” from “buy” before the start of trading. Shares are flat.
On the plus side, Advanced Analogic Technologies Inc. (Nasdaq:AATI), which supplies power management semiconductors, was upgraded to “buy” from “neutral”. However, shares of the Sunnyvale, Calif.-based company are sagging slightly.
Jennifer Schonberger contributed to this article.
