Lower on jobs fears
Small-cap stocks went into a tailspin in early trading, pulled down by a gloomy report on the jobs front ahead of Friday’s key employment release. In addition, some big companies announced plans to slash workers or cautioned on the outlook, which sent a chill into a market that started out the year on a decent roll. At 9:59 a.m. ET, the Russell 2000 (NYSE:IWM) was off 9.96, or 1.93% at 504.75.
The big scare this morning came from the ADP National Employment survey, which showed that the private sector lost a stunning 693,000 jobs in December, way above the 476,000 lost in November and also well clear of the forecast for a decline of 480,000. This marked the largest decline since the ADP report was started back in 2001. The methodology for this report was tweaked, which could take some edge off the big decline in jobs, but the market clearly was stressed by the report. The ADP data also will heighten concerns about the employment picture ahead of Friday’s big monthly jobs report.
Tech bellwether Intel Corp. (Nasdaq:INTC) cautioned on its outlook, which plays into ongoing worries about the economy. INTC shares were off 4.9% shortly after the opening and tech stocks were among the worst performers. Also, the world’s largest aluminum firm, Alcoa Inc. (NYSE:AA) said overnight that it would slash some 13,500 jobs and reduce output, which could put the brakes on recent gains in mining shares. AA was down 9.1% this morning.
A big scandal for the largest Indian outsourcing firm sent chills through India’s equity and foreign exchange market overnight, and anyone holding stock in the U.S. listing of the firm – Satyam Computer Services Ltd. (NYSE:SAY) – lost a ton of money this morning. The stock came into today’s action with a market cap of $3.1 billion and a price of $9.35 dollars a share; the opening was delayed on this stock today, but pre-market activity suggests this will now be a $1-dollar stock. Remember, this is the same company that was trading above $12 dollars in mid-December, but fell hard when the Chairman said he would use the firm’s money to buy a stake in his own son’s infrastructure companies. He quickly backed off that plan when shareholders revolted, but he stepped down overnight saying that profits for Satyam have been overstated for years. India’s stock market fell 7.2% overnight.
Crude oil prices turned lower this morning, pressured by concern about the global economic environment and also on reports of a potential truce in the Gaza Strip. However, gas supplies from Russia into eastern Europe have been halted, which could keep a bid under the market for energy. Shortly after the opening, energy shares were down 2.5%.
Individual small-caps on the move this morning included Crosstex Energy Inc. (Nasdaq:XTXI) which was down 16%, giving back a big part of Tuesday’s huge rally. Landec Corp. (Nasdaq:LNDC) gapped lower and dropped 13% as the maker of temperature polymer products reported earnings. On the upside, NetScout Systems Inc. (Nasdaq:NTCT) gapped higher and jumped 25% as the network solutions firm reported solidly quarterly results.
This might sound strange considering how fall the market has collapsed since mid-September, but short-term intraday momentum studies were actually a little bit overdone heading into today’s session, making the market more vulnerable to “bad” news events like the ADP survey. It is a little disconcerting to the see the market on track for the worst day of the New Year after generating the best day on Tuesday. However, that back and forth action is consistent with the ongoing sideways consolidation. If the market tumbles back below 491, then it would turn the chart picture sour. There is intraday support today near 504.00 and then at 496.50; below 491 look for modest support at 481. On the upside, any recovery rally today likely faces tough sledding approaching 514.50.
