Russell 2000 lower on renewed credit jitters
Small-cap stocks remained lower into midday trading, pulled down by renewed jitters over the credit crunch, which weighed on the financial arena and siphoned some money away into safe-haven Treasury instruments. At 12:35 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.98, or 0.53% at 749.39. Large-cap index products were attracting more aggressive selling, with the Dow off 0.98% and the S&P 500 down 0.85%.
A weekend story in Barron’s intimating that the Treasury Department would have to recapitalize government-sponsored mortgage lending giants Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) at the detriment to current shareholders sparked a rout in mortgage financing stocks, with FNM tumbling 13% and FRE also down 13%. Credit default swaps on GSE, or government-sponsored enterprises, debt widened to record highs, which reflects unease with assuming paper on the firms.
The concerns about GSEs cascaded into the entire financial arena, with the Financial Select Sector SPDR Fund down 2.7% and the PHLX KBW Banking Index down almost 3%. Lehman Brothers Holdings Inc. (NYSE:LEH) tumbled nearly 4% following a report in The Wall Street Journal that the brokerage firm could post $1.8 billion losses and may pre-announce its earnings.
The weak tone in stocks and renewed fears about the credit crisis sparked some buying in Treasury markets.
As one might expect in this type of environment, finance stocks, thrifts, regional banks and insurance firms were all getting knocked about this morning. Meanwhile, commodity names were solid performers as the U.S. dollar was soft. The greenback was down about 0.2% against the euro and over 0.3% against the yen. Although several physical markets were on the mend this morning, crude oil futures were up and down without sustaining a trend, as support from unease in Georgia was countered by expectations for tropical storm Fay to veer away from Gulf production areas.
Among individual small-caps, plastic shoe maker Crocs Inc. (Nasdaq:CROX) jumped 18% this morning, finally mounting a bounce after a dramatic collapse on disappointing earnings a few weeks ago. Dyax Corp. (Nasdaq:DYAX) gapped higher and gained 15% on unusually heavy volume as its drug for the treatment of hereditary angioedema met a late-stage clinical trial goal. Harris & Harris Group Inc. (Nasdaq:TINY) was up 9% to the highest price since mid-June. Percentage losers today were dominated by various banks and financial institutions; outside of that arena, LECG Corp. (Nasdaq:XPRT), gapped lower and shed 11%, giving back all of last week’s impressive rally.
Moving into the afternoon portion of today’s activity, support comes in on the Russell 2000 at 742, then at 734 if things really start to deteriorate. The chart structure from Friday actually is top-heavy because the market rejected the intraday rise Friday to fresh move highs. If the rally can be resumed, then look for resistance at 758 and 764.
