Big drop for small caps
The Russell 2000 (NYSE: IWM) fell hard today as the stain from the subprime mortgage meltdown spread. The small-cap index let go 20.96 points, or 3.07%, to 662.78. The Dow Jones Industrial Average (INDU) declined 214.60 points, or 1.75%, to 12,040.39.
On a year-to-date basis, the Russell 2000 is down 13.48%, while the Dow has retreated 9.23% and the S&P 500 has shed 11.17%.
The bears completely dominated trading today on news before the start of trading that investment company Carlyle Capital Corp. Ltd. had failed to meet a margin call and received a notice of default from one of the banks that helps finance its portfolio of mortgage securities.
Similarly, Santa Fe, N.M.-based residential mortgage lender Thornburg Mortgage Inc. (NYSE: TMA) announced after the close on Wednesday that it had failed to meet a margin call of about $28 million.
A “margin call” is when banks call in their loans to investors, who are in turn forced to sell off assets to raise cash, leading to a reduction in the price of those assets and more margin calls and losses.
Today’s news raised fears that the credit squeeze and the consequences of the housing downturn will continue plaguing the financial system.
One victim of the turbulence is small-cap Anworth Mortgage Asset Corp. (NYSE: ANH), which invests in mortgage-backed securities. The Santa Monica, Calif.-based company was downgraded by an analyst who believes it will have to carry excess capital due to market uncertainty.
Elsewhere, retailers reported February same-store sales that were generally above expectations.
Among small-cap retailers, Everett, Wash.-based Zumiez Inc. (Nasdaq: ZUMZ) reported before the opening that its same-store sales fell 2.6%.
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
• Smith Micro Software, Inc. (SMSI), up 29% to $6.57 on news that adjusted earnings per share beat expectations for the fourth-quarter.
• Flow International Corp. (FLOW), up 19% to $8.97 on news that fiscal third-quarter profit beat expectations.
• Blue Square-Israel Ltd. (BSI), up 12% to $11.90.
• Omrix Biopharmaceuticals, Inc. (OMRI), down 44% to $14.09 on news of a decline in fourth-quarter earnings.
• Capstead Mortgage Corp. (CMO), down 31% to $11.30 on news that company was removed from an investment bank’s list of “Best Idea” stocks.
• Anworth Mortgage Asset Corp. (ANH), down 30% to $6.23 on news of an analyst downgrade.
• Anworth Mortgage Asset Corp. (ANH) 13,077,100 shares traded.
• Capstead Mortgage Corp. (CMO) 10,511,500 shares traded.
• Tessera Technologies, Inc. (TSRA) 9,161,800 shares traded.
The day saw 195 small-cap stocks set 52-week lows, while five small caps established a 52-week high.
