Russell 2000 disappoints again
The Russell 2000 (NYSE: IWM) swung up and down today but eventually failed to join the other major U.S. indices in the green. The small-cap index lost 1 point, or 0.13%, to 749.33, its fifth consecutive decline. The Dow Jones Industrial Average (INDU) added 51.70 points, or 0.40%, to 13,010.14.
On a year-to-date basis, the Russell 2000 has shed 4.84%, while the Dow has advanced 4.29% and the S&P 500 has gained 1.63%.
A volatile day of trading began on a bullish note following news before the opening that U.S. housing starts unexpectedly increased 3% in October, according to the U.S. Census Bureau. Economists were forecasting a small drop after September’s steep 11.4% decline.
Privately-owned housing starts were at a seasonally adjusted annual rate of 1.229 million in October, compared with September’s slightly upwardly revised level of 1.193 million.
Stocks opened in positive territory, with investors apparently disregarding the part of the government’s report that showed a decrease in buildings permits.
Buildings permits, a sign of future construction, fell 6.6% to an annual rate of 1.178 million. That’s the lowest level since 1993 and a sign that the housing sector will most likely continue to stagnate. Building permits in September were 1.261 million at an annual pace.
The bulls remained dominant until shortly after 12 p.m. ET, when the rally abruptly ran out of steam and went into reverse. The small-cap index was the first to take a hit, followed shortly later by the other major U.S. indices.
It’s difficult to say with certainty what the catalyst was, but financial stocks declined as investors once again turned their attention to the credit problems stemming from the meltdown in the subprime mortgage sector.
Freddie Mac (NYSE: FRE), a government-chartered guarantor of U.S. mortgages, reported a record third-quarter loss of $2 billion and warned that it may have to cut its dividend. Should the McLean, Va.-based company, which purchases loans from lenders and packages them for sale to investors, limit its business, the resulting liquidity squeeze will reverberate through the housing market and likely make a bad situation even worse.
Separately, the U.S. Federal Reserve said today that it expects economic growth to slow in 2008, while unemployment is expected to increase slightly from the current level of 4.7%. Inflation is projected to remain in check.
Stocks spent the afternoon in the red but a renewed rally in the closing half-hour of the session managed to lift everyone but the Russell 2000 back into positive territory. The small-cap index recovered its losses but closed just below the flat line.
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• General Moly Inc. (GMO), up 18% to $9.98 on news that steelmaker ArcelorMittal (MT) will buy a 12.6% stake.
• iGATE Corp. (IGTE), up 18% to $7.84 on news of an analyst upgrade.
• Restoration Hardware Inc. (RSTO), up 13% to $7.18 on news Sears Holdings Corp. (SHLD) has bought a stake in the company.
Biggest percentage losers:
• Noah Education Holdings Ltd. (NED), down 38% to $6.72 despite news of a rise in fiscal first-quarter profit.
• Deswell Industries Inc. (DSWL), down 25% to $6.47 on news that fiscal second-quarter earnings missed analysts’ expectations.
• Omega Flex, Inc. (OFLX) down 15% to $13.20. A company representative could not be reached for comment.
Volume leaders:
• Hovnanian Enterprises, Inc. (HOV) 6,619,800 shares traded following news that it will present at the JPMorgan Homebuilding & Building Products Conference on Wednesday.
• Spansion Inc. (SPSN) 5,058,600 shares traded.
• Noah Education Holdings Ltd. (NED) 4,487,800 shares traded on news of a rise in fiscal first-quarter profit.
The day saw 145 small-cap stocks set 52-week lows, while four small caps established 52-week highs.
