Profit worries; sinking commodities extend slide
Small-cap stocks started out the week with a whimper, extending Friday’s slide as investors unload stocks amid fears about corporate profits during one of the worst recessions in history. Energy and commodity markets were hammered today, which escalated selling interest in companies with close ties to physical markets and reinforced worries about the slumping economy in front of another push of data later this week. The Russell 2000 (NYSE:IWM) closed down 12.50, or 2.60%, at 468.80, the lowest daily close of 2009. For the year, small caps are down 6.1%, while the Dow is off 3.4% and the S&P 500 is down 3.7%. The fact that small caps are still leading the way down so far this year is cause for concern, running contrary not only to bottoming hopes, but also a season that is supposed to favor small caps.
Financial stocks – particularly banks – joined commodities as a noteworthy soft spot for equities today, but in reality the pain was spread around just about everywhere. Looking at S&P sectors, only distillers and packaged food companies had noticeable gains; meanwhile sizable declines in the double digit range were found in all of the following sectors: industrial real estate investment trusts, tire and rubber companies, metal and mining stocks, coal producers, homebuilders, diverse financial services firms, steel companies and construction firms.
Energy stocks were a big drag on the market, with the Energy Select Sector SPDR Fund off 3.8%. Crude oil futures in the U.S. closed down nearly 8%, shedding $3.24 down to $37.59. But the story in commodities today comprised much more than just energy; grains markets were ravaged, with corn sinking some 7% in the morning to touch limit losses. Meanwhile, gold lost 4% and the Gold and Silver Index fell 6.5%, with mining stocks among the worst performers on the day. While some of the losses in commodities might have been exacerbated by a strong dollar, it is primarily a reflection of soft demand amid difficult times. The Commodity Research Bureau Index fell 4% today, which is a big one-day move for an index that reflects price action in 19 different physical markets.
Today marks the unofficial start of first-quarter earnings season, and investors were bracing for plenty of bad news on the profit front. After the close, Alcoa Inc. (NYSE:AA) reported a larger-than-expected loss. Alcoa closed down 7% today ahead of earnings amid an analyst downgrade. Before Alcoa even reported results they told investors that they would slash over 13,000 jobs and reduce output. And even though the Alcoa news kicks off the earnings push, we’ve already seen plenty of small-cap (and big-cap) firms issuing warnings ahead of the actual numbers.
Individual small caps on the move today included Satyam Computer Services Ltd. (NYSE:SAY), which tumbled 83% on massive volume as the Indian outsourcer caught up to the news last week that the firm’s leader resigned and said that profits for Satyam had been overstated for years. This was a $24 stock last summer; today it was below $2 a share. One of last week’s star small-cap stocks, Tiens Biotech Group (USA) Inc. (AMEX:TBV) came back down to earth in bone-jarring fashion today, falling 47%. Landrys Restaurants Inc. (NYSE:LNY) fell 34% on huge volume on news that a buyout deal fell through. Penford Corp. (Nasdaq:PENX) fell 24% as the natural-based food applications firm continued to reel from weak profit numbers reported late last week. Zep Inc. (NYSE:ZEP) fell nearly 23% as the maker of cleaning solutions also took an earnings-related hit. On the upside, Advanced Medical Optics Inc. (NYSE:EYE) was the big winner, soaring 143% on a takeover deal.
Today’s extension of last Friday’s slide cemented the downside breakout back below important support at 491, and the market certainly didn’t waste any time violating the next key point at 473. From here, there is another support line along 461, then the big range point at 450. A push back below 450 would suggest that a retest of the lows is likely, so the stakes are now ramping up through the rest of this week. When most of us are getting coffee in the morning, Federal Reserve Chairman Ben Bernanke will be in London talking about crisis response to the market, so that could be a market-moving event Tuesday morning ahead of the actual stock market open. Although the international trade data seldom is a big market mover for stocks, it could usher in some volatility for foreign exchange markets – likely on the radar screen for commodities after today’s rout in physical goods prices.
