Russell descends on credit woes
The Russell 2000 (NYSE: IWM), along with the other major U.S. indices, is treading lower this morning after disappointing earnings from Bank of America Corp. (NYSE: BAC) refreshed investors’ concerns that the subprime mortgage debacle is materially cutting into corporate earnings and the economy.
At 10:37 a.m. ET, the small-cap index had shed 1.33 points, or 0.16%, to 823.56. The Dow Jones Industrial Average (INDU) was down 25.61 points, or 0.18%, to 13,866.93.
Bank of America’s third-quarter net income plunged 32% on account of write-downs on leveraged buyout loans and higher credit loss provisions. The firm’s third-quarter profit was $3.7 billion, or $0.82 per share, below analyst expectations of $1.06 per share and from $5.4 billion, or $1.18 per share, during the same period of 2006.
Adding to bearish earnings news, Pfizer Inc.’s (NYSE: PFE) third-quarter net income plummeted 77%, due to a $2.8 billion charge related to the company exiting its insulin product, Exubera. The company made the decision to exit Exubera because of intense competition from generic competitors. Pfizer’s third-quarter net income totaled $0.76 billion, or $0.11 per share, below Wall Street projections of $0.52 per share and from $3.36 billion, or $0.46 per share, a year earlier.
Earnings from Bank of America and Pfizer overshadowed Nokia Corp.’s (NYSE: NOK) strong third-quarter results. The mobile device maker reported an 85% increase in third-quarter profit, on a 26% increase in the number of phones shipped in the quarter.
As stocks sold off, treasuries rose for the fourth straight trading session for the first time since August, as the effects of the credit crisis reared its ugly head on reducing earnings at some of the largest U.S. banks. The yield on the two-year note fell to 3.92% at 10:06 a.m.
The odds for a quarter-percentage point Fed rate cut at the Oct. 31 meeting rose to 68% odds from a 54% chance Wednesday. The increased odds of a Fed rate cut sent the dollar tumbling to a record low against the euro. The dollar fell to $1.42 against the euro at 11 a.m. ET.
In economic news, the U.S. Department of Labor reported early this morning that initial jobless claims for the week ended Oct. 13 rose to 337,000 from 309,000 last week and above the forecasted 315,000 claims economists had anticipated.
The Philadelphia Fed index, a regional manufacturing index for Pennsylvania, New Jersey and Delaware, is due out at noon today. Economists are forecasting a level of 7 for the month of October, down from the previous month’s level of 10.9. A reading above zero signifies expansion.
Here are the biggest percentage gainers and losers in pre-market trading among companies with a market cap below $750 million:
Biggest percentage gainers:
• Fonar Corp. (FONR), up 35%, on news that it received six orders from Health Diagnostics.
• WSI Industries, Inc. (WSCI), up 23.8% on an increased sales outlook.
• Rimage Corp. (RIMG), up 17% on news that its third quarterly profit is up.
Biggest percentage losers:
• Novastar Financial (NFI), down 17% as the company may be forced to delist from the NYSE.
• Avici Systems, Inc. (AVCI), down 15% after it missed third-quarter revenue estimates.
• Triad Guaranty Inc. (TGIC), down 12%, as mortgage insurers continue to be beat down after large mortgage insurer MGIC Investment Corp. (NYSE: MTG) reported millions in losses due to unpaid loans.
