Financial, retail share woes spark small-cap slide
Small-cap stocks took it in the chin Wednesday, with retail stocks and financial shares falling out of favor with investors amid a gloomy economic environment and the ongoing credit crisis. The Russell 2000 (NYSE:IWM) lost 5.86, or 0.80%, to 730.71.
The S&P Retail Index crumbled nearly 2% to the second-lowest close since late March. Big-name department stores like Dillards (NYSE:DDS), JC Penney (NYSE:JCP), Nordstrom (NYSE:JWN), Kohls (NYSE:KSS), Macy’s (NYSE:M) and Sears (Nasdaq:SRLD) were all deep in the red
In the financial arena, the biggest percentage loser of the day was MF Global (NYSE:MF), the giant futures and commodities brokerage firm that was split off from Man Group last year. MF shares collapsed nearly 40%, shrinking its market cap down to about $945 million in the process. MF projected a significant decline in revenue and said it would raise $300 million to repay debt via $150 million in preference shares and another $150 million in convertible senior notes.
Although the steep freefall in MF shares was an attention grabber, the bears were active throughout the financial sector. In fact, late in the day seven of the top 10 percentage declines on the Nasdaq were either banks or financial firms. Tuesday’s slide in regional banks remained in play today, with Fifth Third Bancorp (Nasdaq:FITB) sinking nearly 20% after the firm said it would raise at least $2 billion in capital and slash dividends to help overcome credit losses.
The Dow slipped to the lowest daily close since mid-March, when the market was grappling with the collapse of Bear Stearns. For the recent move, the Dow peaked earlier than the Russell 2000, hitting a high on May 19 at 13,136. From the May 19 high to today’s low, the Dow is off 8.7%, while the Russell is only down 2.9% over that same time frame (although the Russell is off 4.8% from the early June high to Wednesday’s low).
In addition to financial shares, the biggest sector losers on Wednesday were seen from automobile manufacturers, motorcycle manufacturers, tire and rubber stocks, and auto parts shares. On the upside, coal, railroads, oil and gas drillers, gold and brewers were among the best performers.
Individual small caps of note Wednesday included Sterling Financial Corp. (Nasdaq:STSA), which hit fresh 52-week lows and saw heavy volume in recent days on a downswing tied to the financial sector. Cathay General Bancorp (Nasdaq:CATY), also plunged to new 52-week lows, losing about 13%. Small-cap airline US Airways Group Inc. (NYSE:LCC) was off over 8%. LCC’s president said on CNBC late this afternoon that a merger would not happen “in the near term.” Airline stocks in general did not fare well today, with the Amex Airline Index down more than 3%.
On the upside, La-Z-Boy Inc. (NYSE:LZB) was up almost 8%, building upon the rally that was triggered Tuesday after reporting earnings earlier in the week. The most explosive move of the day came from MEDecision Inc. (Nasdaq:MEDE) which soared 287% on brisk volume amid news the firm will be bought by Health Care Service Corp. for $121 million, or about $7 dollars a share. Reddy Ice Holdings Inc. (NYSE:FRZ) was up nearly 8% to the highest point since early March.
Crude oil prices were up and down during the session, but rallied into the U.S. close, climbing about $2 dollars a barrel to nearly $137 amid talk of a pending strike in Nigeria, which overshadowed a smaller-than-forecast drop in weekly crude stocks. Energy markets weren’t exactly the only physical products on a roll. Cocoa prices hit 28-year highs, sugar was up 3.5% to seven-week highs, gold was higher and even base metals such as copper, aluminum and lead were up on the day. The surge in commodities prices lifted the Commodity Research Bureau Index to all-time highs.
Looking ahead to Thursday’s action, the market will get a chance to react to data on weekly unemployment claims before the open. Then at 10:00 a.m. ET, economic news on leading indicators and the Philly Fed survey could play a role in market direction.
The chart picture remains top-heavy, although the bounce off intraday lows Wednesday was a decent show of support. A push below chart support at 726 would open the door to test even more support down at 720.50. On the upside, resistance comes in at 741 (with some sellers perhaps around the 735 zone), then at 746.50 and 750.
