Russell crumbles
The Russell 2000 fell hard following a dire warning from the financial sector and neutral inflation comments from the U.S. Federal Reserve’s Chairman. The Russell 2000 violently snapped its five-day winning streak, losing 15.76 points, or 1.85%, to finish at 837.48. The Dow Jones Industrial Average shed 148.27 points, or 1.09%, to 13,501.70.
Stocks began the day on the wrong foot following news that Sears Holdings Corp. (Nasdaq: SHLD) reported a decline in same store sales for the nine-week period ended July 7 and an announcement by home improvement retailer Home Depot Inc. (NYSE: HD) that earnings for the year will decline more than expected.
Later, rating agency Standard & Poor scored one for the bears when it announced that it may reduce the credit ratings of $12 billion of bonds backed by subprime mortgages. That could make things even worse for hedge funds and securities firms that had placed bets on subprime mortages, which are mortgages made to borrowers with poor or non-existent credit histories.
S&P attributed the potential downgrade to weakness in the U.S. housing market, which it does not think will improve in the near term.
Already hurting, the U.S. indices slipped even more following Federal Reserve Ben Bernanke’s ambiguous remarks on inflation.
Although the public expectations of future inflation more firmly fixed than in previous decades, they are still “imperfectly anchored,” Bernanke told the National Bureau of Economic Research in Cambridge, Mass. this afternoon. The Fed Chairman largely avoided the issue of monetary policy, which indicates that the federal funds rate is likely to stay at 5.25% in the near future.
In other economic news, the price of oil added $0.62, for a price of $72.81 a barrel following news that the United States has sent a third aircraft carrier to the Persian Gulf and that Iran is producing centrifuges for the refining of uranium.
Among specific small-cap companies:
Shares of Unica Corp. (Nasdaq: UNCA) fell on news that the company’s fiscal third quarter revenue guidance missed expectations. Total revenue for the three months ended June 30 is expected at about $23.0 million, the Waltham, Mass.-based provider of enterprise marketing management software said after Monday’s close. Analysts were calling for revenues of $27.02 million. The stock dropped $4.02, or 26%, to end the day at $11.58.
Joining the long list of losers was Depomed, Inc. (Nasdaq: DEPO), whose shares fell $2.93, or 59%, to $2.00, on news of a failed drug trial. A Phase III clinical trial of a treatment for postherpetic neuralgia, which is a persistent neuropathic pain condition caused by nerve damage, concluded that the drug Gabapentin GR was not more effective than a placebo, the Menlo Park, Calif.-based company announced before the opening bell. “The Phase 3 results we received today were very surprising and disappointing to us in light of the encouraging safety and efficacy data that we observed in our phase 2 clinical trial,” Chairman and CEO John Fara said, adding that Depomed has not yet decided how to proceed but will continue its clinical program for menopausal hot flashes.
Rubicon Minerals Corp. (AMEX: RBY) has discovered gold, the Canadian mineral exploration company reported after Monday’s close. Rock samples from a one-square mile area in the Pogo region of central Alaska contain gold in excess of 1.0 g/t, with an average of 5.2 g/t gold. Rubicon has over 500,000 acres of 100%-controlled and joint venture land in the Pogo gold district. Shares added $0.02, or 1%, to close at $2.04.
