Retail, tech stocks power selling fury
Small-cap stocks started out what is traditionally one of the quietest weeks of the year in the stock market with a jolting decline as concerns about corporate profits and the slumping economy took a toll on retailer, tech stocks, automakers and energy shares. However, a late bounce off the worst levels of the day took some of the sting out of the decline. The Russell 2000 (NYSE:IWM) closed down 11.19, or 2.30%, at 475.07.
Risk appetite on the equity side of things was also an issue today, with small caps noticeably underperforming large caps most of the day. Part of that might have been an adjustment off the nice rise last Friday and Tuesday for small-cap fare. Still, despite the soft tone in equities, Treasury markets were relatively tame and actually were lower into the final hour of trading, which suggests investors weren’t fleeing stocks for safe-havens, they were just worried about stocks in general.
A big part of that worry was likely tied to expectations for this year’s shopping season to be dismal. Last weekend was supposed to spark a final rush of last-minute holiday shopping, but dreadful weather in many locations probably kept shoppers huddled up indoors instead of at the stores. The International Council of Shopping Centers is anticipating holiday sales to drop as much as 1%, the largest decline since at least 1969, when the group started tracking data.
The U.S. economy is heavily dependent on consumer spending, but with the economy in recession all year and unemployment climbing to the highest levels in a generation, even steep discounts at the stores haven’t been able to save holiday cheer for retailers. The S&P Retail Index tumbled more than 4% today. As for small-cap shops on the move today, Charming Shoppes Inc. (Nasdaq:CHRS) collapsed 20%, basically giving back most of Friday’s dramatic surge. That theme of giving back big individual moves from Friday reverberated throughout the small-cap universe today. One retailer that didn’t do particularly well Friday and certainly didn’t do well today was American Eagle Outfitters Inc. (NYSE:AEO), off nearly 5% today.
Crude oil prices tumbled again today, pulled down by worries not just about the demand picture from the United States, but also from China, where oil imports for the second-largest customer on the planet fell to their lowest level of the year in November. Crude oil prices lost almost 6% in U.S. trading, slipping back below $40 a barrel on the close. Meanwhile, energy stocks tumbled about 4%.
The day started out with sobering news on the auto front, with Toyota saying that they would post their first yearly operating loss in 71 years, and car stocks falling in Europe. As the day progressed in the U.S. automaker shares were pummeled. General Motors Corp. (NYSE:GM) lost about 20%, with some analysts warning that GM’s stock could plunge to $1 a share. Ford Motor Co. (NYSE:F) wasn’t immune to the contagion, sinking nearly 13%.
Looking at individual small caps on the decline, Clearwater Paper Corp. (NYSE:CLW) continued to unravel, losing 29% today and down 59% over the past five trading sessions. Grey Wolf Inc. (AMEX:GW) gapped lower and shed 52% as the oil and gas drilling services firm that is in a merger process with Precision Drilling went so far as to release a statement saying they did not know a reason for the sudden drop in GW share values. ArthroCare Corp. (Nadaq:ARTC) fell 25%, extending the dramatic collapse from Friday when the firm restated financials.
The short-term chart picture for small caps clearly deteriorated today, but the market remains within the broad trading range characterized by the Dec. 1 bottom at 416. A breach of that bottom could trigger a retest of the bear market lows. Meanwhile, the market is close to logical support at 461; below there, 450 is the next key testing ground. On the upside, resistance Tuesday will be at 481, then the key point is still at 491. The market will also receive a flurry of economic data Tuesday morning, including the GDP revision, new home sales, existing home sales and consumer sentiment figures.
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