Credit, financial fears crunch small caps
Small-cap stocks pushed lower Monday as credit crunch fears resurfaced, igniting a flurry of selling in the financial sector that spread into several other arenas as well. The Russell 2000 (NYSE:IWM) tumbled 7.25, or 0.97%, to 741.03. For much of the day, small caps appeared set to generate the largest one-day percentage decline in nearly a month, but some late buying in the final half-hour lifted the market well off the intraday lows.
Renewed concerns about the credit crisis originated overseas in the United Kingdom when Bradford & Bingley (LON:BB), a large mortgage provider for residential rental units said that housing market woes are deepening. Shares in Bradford & Bingley tumbled 24% and sparked selling enthusiasm in various European banks.
Selling in financial shares picked up additional momentum when Standard & Poor’s lowered credit ratings on some key U.S. securities firms. Lehman Bros. (NYSE:LEH) shed over 7% on the ratings news, while Morgan Stanley (NYSE:MS) and Merrill Lynch (NYSE:MER) both lost over 3%.
In addition to the concerns over mortgage houses, brokerage firms and other financial shares, a couple of major American banks changed up top management leaders, which also shook up the market. Wachovia Corp. (NYSE:WB) ousted its CEO and the stock slid about 2%. Meanwhile, Washington Mutual (NYSE:WM), said it would strip away the title of chairman from its chief executive next month. Washington Mutual shares dipped to their lowest level since mid-March on the news, but bounced back to close near steady levels.
Even though the credit crunch concerns dominated investor psychology today, a reversal in crude oil from overnight losses probably didn’t help matters for the bulls. Crude oil climbed back to nearly $128 dollars a barrel, while gold pushed higher. In addition, wheat futures jumped 2.7% and corn rallied about 2.6%. The Commodity Research Bureau Index climbed 0.85% and is just slightly below the record highs set two weeks ago.
With the focus squarely on all those various financial concerns, this morning’s ISM Manufacturing Survey slipped into the background. The ISM report showed that manufacturing picked up a little activity in May, with the report coming in at 49.6, above the forecast for 48.5. Still, the number is soft overall, has been for several months and clearly didn’t provide enough of an upside surprise to offset the credit crunch fears.
Although the market was willing to shrug off economic data today, the calendar is still full of big reports the rest of the week, highlighted by Friday’s key employment release. Tuesday serves up vehicle sales throughout the day, factory orders at 10:00 a.m. ET, and Federal Reserve Chairman Ben Bernanke making an appearance via satellite at 9:00 a.m. ET for the International Monetary Conference Central Bankers’ Panel. Bernanke is expected to talk about the economic outlook and take questions from the audience, which could stir volatility in morning trading.
As one might expect, financial sectors were big losers today, with investment banking and brokerage firms attracting sellers, as did specialized finance firms and consumer finance stocks. Other poor performers on Monday included tire and rubber stocks, motorcycle manufacturers and casinos. The only sectors showing impressive gains were coal and refining/marketing stocks.
Within individual small caps, Palm Harbor Homes (Nasdaq:PHHM) tumbled nearly 20% without fresh news. Kohlberg Capital Corp. (Nasdaq:KCAP) lost about 14%, pulled under by the financial slide. MAP Pharmaceuticals (Nasdaq:MAPP) declined some 13%, rejecting a big rally from Friday’s session in the process. On the upside, Avant Immunotherapeutics Inc. (Nasdaq:AVAN) soared some 26% on unusually heavy volume on news that the company’s cancer vaccine doubled the survival rate of the most common form of brain tumors. Also, ABIOMED Inc. (Nasdaq:ABMD) surged 15% to 52-week highs on brisk turnover amid news that the FDA approved the sale of its heart pump.
The Russell 2000 held a test of the 20-day moving average Monday, but once again retreated in the shadow of key long-term chart resistance near the 750 zone, which corresponds with a 50% retracement of the entire bear market collapse. The market slipped through initial support at 741 and 735 during the day, but bounced back near 741 at the close. If the market slips through 735 again on Tuesday, then the next important downside support areas to watch are at 726 and 720.50. On the upside, resistance is at 744 and the aforementioned 750.
