Russell falls from perch after two green days
Small caps opened lower and continue to bleed midday as concerns about financials and the credit crisis resurfaced to the top of the docket for investors.
At 1:00 p.m. ET, the Russell 2000 (NYSE:IWM) had slipped 4.68, or 0.68%, to 736.38, while the Dow skidded 61.41, or 0.52%, to 11,721.21.
After what seemed to be the beginnings of a strong rally, the small-cap index lost its steam as a myriad of lackluster news spewed out of Wall Street’s major investment houses reminding investors of the difficulties that continue to enrapture financials.
JP Morgan (NYSE:JPM) said in a regulatory filing Monday that trading conditions have “substantially deteriorated” and that it anticipates the global economy will remain anemic, that capital markets will remain under pressure and that it expects housing prices to continue to crumble. The bank said it squandered $1.5 billion after hedges of its mortgage-backed securities and loans. Shares skidded 7% midday.
UBS (NYSE:UBS) reported today that it took a $5.1 billion write-down and booked a fourth consecutive loss in the second quarter of $331 million, as the bank continues to grapple with decayed subprime mortgage securities. The bank also said it will split up its investment banking and wealth management divisions.
Goldman Sachs (NYSE:GS) is off 4.5% midday after Deutsche Bank lowered its rating on the investment bank to “hold” from “buy” and reduced its target price. Oppenheimer’s Meredith Whitney also slashed her earnings outlook for this year and next.
Morgan Stanley (NYSE:MS) said it will repurchase $4.5 billion in auction rate securities after securities regulators demanded investors be reimbursed.
Wachovia (NYSE:WB) is also purported to be refining moves to buy back auction rate securities. The fourth-largest U.S. bank is also seeing downward pressure after stating that it expects a wider-than-originally anticipated loss of $9.11 billion. Shares were off 8% midday.
In economic news, the international trade report came in better than expected, with the trade deficit shrunk to minus 56.7 billion dollars, compared with the consensus forecast for a deficit of 61.5 billion. The weak dollar coupled with a tapered climb in petroleum imports converged to form the narrowest deficit in three months.
“Lower oil … means the U.S. trade deficit should see an improvement as the dollar volume of oil coming into the country drops,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “Since oil is the major import category, this is significant as this adds directly back into GDP. Expect further improvement in the US trade picture for July/August which will pump up US GDP as well.”
After spiking early in the session and adding to downward pressure on equities, crude is moderating, flickering between the red and green midday. A barrel of light sweet crude for the September contract had slipped $0.88 to roughly $113 a barrel. Russia reportedly said it is ending its ambush against Georgia, as Russian President Dmitri Medvedev said Russia had accomplished its goal. However, the aficionado did not state that Russia would initiate troop withdrawal. The inherent slide in demand around the world, however, is keeping the bears at bay.
The greenback continues its assent against the euro, trading at $1.49 midday.
In broader industry groups auto and truck manufacturers, computer hardware, and auto and truck parts are gaining ground, while railroads, financials and construction services are leading the market lower.
In small-cap headlines, shares of Comverge, Inc. (Nasdaq:COMV) have sunk 31% after the provider of peaking and base load capacity solutions to electric utilities, grid operators, and associated electricity markets this morning reported second-quarter net income and revenues that fell short of the consensus on Wall Street and lowered its full year revenue guidance. The firm lowered its revenue outlook due to a regulatory change in grid operator PJM's rules for its economic program, which the company said will result in a reduction in the revenues received under economic, or voluntary, demand response programs.
Shares of Fushi Copperweld, Inc. (Nasdaq:FSIN) are getting clobbered after the China-based manufacturer of bimetallic wire used in a variety of telecommunication, utility, automotive applications said that it is lowering its fiscal 2008 earnings on account of the anemic housing market in the United States, which feeds telecom demand, and because of a decline in telecom capital spending in China due to industry restructuring. Shares slipped 21% midday.
On the upside, shares of Intersections Inc. (Nasdaq:INTX) are up 27% midday after the provider of consumer and corporate identity risk management services posted robust second-quarter results. Revenues surged 44.7%, while earnings shot up 212%, as the firm saw an increase in subscribers and revenues.
