Bears not ready for hibernation despite rate cut
Small-cap stocks went back into full-blown bearish mode into mid-session trading, sinking to daily lows while also notching the lowest intraday price print since August 2004. At 12:37 p.m. ET, the Russell 2000 (NYSE:IWM) was down 20.92, or 3.74% at 538.03. Small-caps were once again pacing the move downward and have been consistently underperforming large-caps on the way down the last few weeks. Both the Dow and S&P 500 were off about 2.2% at midday.
Today’s resumption of the slide must come as a huge disappointment to central bankers around the world, who united this morning to present a coordinated rate cut that they hoped would thaw frozen credit lines and renew optimism in the financial community. For now, the rate cut appeared to have only a fleeting bullish response for the market – and even that disappeared within hours as investors continue to fret about the economy. Even inter-bank lending rates were reluctant to free up despite the bold central bank move on rates.
The market also attracted buyers briefly this morning when the National Association of Realtors pending home sales data rose 7.4% to the highest level since June 2007. While a surprise, investors tended to see the data spike as an anomaly and not a true indication that the housing crisis is in the rear-view window. Earlier in the day, the MBA Mortgage Application Survey rose 2.2%, but was still down 28.6% from last year and hovering near seven-year lows. Goldman Sachs recently downgraded its economic outlook for the U.S., predicting that the malaise will linger well into 2009, and could push unemployment rates to the 8% zone (the jobless rate is already at 5-year highs at 6.1%).
On top of the gloom surrounding the economic picture, earnings season got the official kick-off with ALCOA Inc. (NYSE:AA) and this wasn’t a pretty picture either. AA shares were down 16% at midday as the firm said it was halting major capital markets projects following a lower-than-forecast quarterly profit.
In addition, in recent days we’ve seen several instances of proposed mergers for small-cap firms being pulled out from the rug, and these events have been seen on some of the biggest one-day declining movers in the small-cap arena. This trend clearly reflects a difficult credit environment made even more troubling by dramatic loss of market value for the firms involved.
Speaking of individual small-cap movers, Gladstone Commercial Corp. (Nasdaq:GOOD) tumbled 27%, gapped lower and is at 5-year-plus lows. Moog Inc. (NYSE:MOG.B) made record highs just a few weeks ago at nearly $50 bucks a share. Today MOG.B is down 23% and is at 2-year lows. Universal Truckload Services Inc. (Nasdaq:UACL) is off about 20% today and has gone from 2-year highs to 10-month lows in about 4 weeks.
Looking at sector activity today, about the only gold in “them thar hills” today was in gold shares, with the physical market climbing as investors continue to scamper for a safe-haven outlet amid the stock market meltdown. Tires, diversified banks, asset management firms were also on the rise today, but those gains were swamped by big losses in energy shares and broad-based declines in other arenas.
