Russell off lows, but still hit hard on bank woes, retail sales
Small-cap stocks remained sharply lower into mid-session, pressured by fresh worries about the health of the banking sector as we enter into earnings season and by dreadful retail sales numbers this morning. The Russell 2000 (NYSE:IWM) pulled off the morning lows, but was still down 17.56, or 3.71%, at 456.23, slipping to the lowest level since mid-December.
The sell-off today was broad based, with financials, commodities, retailers and manufacturer companies all taking a hit, but the slide in bank stocks clearly was the major spot of bother.
Bank stocks took a hit in European trading ahead of today’s opening and those concerns continued to play out during the U.S. session. Citigroup Inc. (NYSE:C) has been pelted today, losing nearly 19% as the embattled bank sales off assets to raise cash and announced plans to release earnings figures early. In Europe, major banks like HSBC, Commerzbank and Deutsche Bank all suffered losses of 8% or more as investors fret about the possibility for another wave of debt write-downs.
In addition, snags in the appointment of Wall Street alum Timothy Geithner to the Treasury Secretary post have worried investors about bank stocks and the bailout plans. Recently, Federal Reserve officials have pushed for the next release of TARP funds to target toxic assets, but with the Geithner appointment issues and a Congress that isn’t happy with how the first batch of money was allocated, it could hold up distribution of $350 billion in TARP funding.
This morning’s retail sales report suggested that the recession that was started by the housing crisis has now seeped into a general consumer recession as well, with retail sales excluding autos down a record 3.1%.
Heading into today’s session, it looked like energy and commodity markets might be stabilizing, but crude oil futures tumbled amid the sell-off in stocks and energy shares were dueling with financials for the biggest downside market hit so far today. The Energy Select Sector SPDR Fund was off 4.5% at midday. Countries that are heavily dependent on energy and other commodity exports – such as Brazil and Mexico – were seeing their stock markets take a beating today as well, with Brazil’s Bovespa stock index off some 3%.
Individual small caps on the move today included FNB Corp. (NYSE:FNB) fell 19% as the lender announced preliminary quarterly results that included a loss stoked by bad loans and non-cash charges. BPZ Resources Inc. (AMEX:BPZ) was down nearly 18% as the oil and gas exploration firm was drilled along with most energy stocks. Commercial services firm with energy ties Macquarie Infrastructure Co. LLC (NYSE:MIC) was down 16%. Bucking the dominant market downdraft, publishing firm Value Line Inc. (Nasdaq:VALU) was up about 12% and poised to post the highest daily close since September.
The Russell appeared to find support on the slide today near the 454 zone, but the real test is closer to 450. The market is now back below the 20- and 50-day moving averages, which could attract additional technical selling. It’s worth noting that today’s slide appears to be taking place on rather light volume, which takes some of the sting out of the decline (though not much). If the market can mount a recovery rally this afternoon, look for resistance at 466, 473 and 481.
