No triple for Russell 2000
The Russell 2000 (NYSE: IWM) and the Dow halted two days of strong gains on concerns about the far-ranging impact of the subprime meltdown and news of mixed earnings. The small-cap index fell 7.64 points, or 0.93%, to 809.76. The Dow Jones Industrial Average (INDU) lost 48.86 points, or 0.35%, to 13,766.70.
Futures were pointing south and small-cap stocks opened with a drop following news that financial services giant Bear Stearns Companies Inc. (NYSE: BSC) suffered a 61% drop in the third quarter due to its investment in securities backed by subprime mortgages.
Of the major financial institutions, the New York-based brokerage house is the most exposed to the subprime mortgage market and has suffered the most since the meltdown began earlier this year.
On the other hand, Goldman Sachs Group, Inc. (NYSE: GS) announced that its quarterly earnings soared 79%, breezing past Wall Street’s projections.
Transport giant FedEx Corp. (NYSE: FDX) added to the negative tone when it announced that it is reducing its fiscal year 2008 expectations due to a weaker U.S. economy.
Meanwhile, U.S. Federal Reserve Chairman Ben Bernanke appeared in front of Congress and told lawmakers that the recent financial turbulence stems from the troubled subprime mortgage sector, “but the resulting global financial losses have far exceeded even the most pessimistic estimates of the credit losses on these loans.”
Consequently, “recent developments in financial markets have increased the uncertainty surrounding the economic outlook,” Bernanke said to members of the House of Representatives Financial Services Committee.
That was enough to set the stage for the bears to dominate the session. The Russell 2000 went down and never neared positive territory, while the Dow bounced around close to the flat line before settling on a downward trajectory early in the afternoon.
Otherwise, the economic news that came out today was generally positive.
The U.S. Labor Department reported that the number of American workers filing for unemployment benefits fell 9,000 to 311,000 for the week ended Sept. 15, the lowest level in seven weeks.
Economists had forecasted claims to stay at their upwardly revised previous level of 320,000.
The numbers indicate a surprising improvement in the labor market, which has become the focus of attention during the past few weeks as fears of an economic slowdown have multiplied.
Elsewhere, the Federal Reserve Bank of Philadelphia reported that its monthly index of regional manufacturing activity showed an unexpectedly strong rise in September. The index covers Pennsylvania, New Jersey and Delaware.
