Russell plunges to two-month lows
Small-cap stocks took a nosedive on the opening, knocked to the canvas by yet another rout in financial stocks and by a dramatic morning plunge in technology stocks. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was down 8.99, or 1.25%, at 707.31, reaching the lowest point since April 24.
The tech-laden Nasdaq 100 Index was off about 2% this morning, with big-name tech stocks like Research in Motion (Nasdaq:RIMM) and Oracle Corp. (Nasdaq:ORCL) leading a jolting slide in the tech arena to start the day. RIMM shares were off 10% as its forward guidance disappointed. Oracle reported solid quarterly results, but provided a cautious outlook for the next quarter. Shares for the third-largest software maker were off 3% early.
The selling mood was also fueled this morning by a steep climb in crude oil prices, which shot back above $138 dollars a barrel. Commodity markets look firm to start the day amid a soft tone in the U.S. dollar. Corn prices are called sharply higher, copper prices were up 1.5% overseas and aluminum prices are up 10% so far in June, which keeps nagging inflation fears right in front of the market at a difficult time for the economy and for interest rate policy makers.
Analyst downgrades also took a toll on stocks this morning as researchers at Goldman Sachs lowered its rating on General Motors Corp. (NYSE:GM) overnight to a “sell” from “neutral,” and the stock tumbled 10% shortly after the open. Goldman put Citigroup (NYSE:C) on its sell list and the nation’s top bank slumped more than 5% early. Goldman also slashed its rating on the brokerage industry, so those stocks could be under pressure this morning as well. Merrill Lynch (NYSE:MER) shares were off 4%, joining the weakness seen in financial shares after the opening.
Financial stocks were taking a hit overseas, with European bank Fortis sinking some 10% on news that it will cancel its dividend and raise capital. European stocks were also off more than 1% heading into the U.S. open, while Asia shares were mixed overnight.
Nike (NYSE:NKE), the world’s largest maker of athletic apparel and tennis shoes, was down 7% early today after posting solid earnings overnight, but noted that U.S. orders looking ahead were flat.
Another batch of economic data came and went with little fanfare this morning. The GDP report came in as expected and is very dated as it settles the score on final Q1 growth. The headline figure was at plus 1%, meaning the economy did not dip into any “official” recession to start 2008. Meanwhile, weekly claims figures rose to 384,000 in the latest week, which was slightly above the forecast, but which didn’t seem to matter much in lieu of a 1% slide already underway in after-hours stock derivatives trading. Finally, the existing home sales report came in better than expected at plus 2%, with an annual rate of 4.99 million units and sparked a very mild upside rise in stock index futures that had little impact on the huge slide already underway.
From a technical analysis standpoint, the chart structure has been top-heavy for some time, and this week’s slide fits with a bearish head-and-shoulders top that was in place. The breach of key support in the 717.50 zone opens the door for another leg down for the Russell, with the next downside target at 690. It would take a decisive run back above 720.50 to suggest that this was simply a “head fake” breakdown and not a more significant push into a downward extension. As the day progresses, support now comes in at 704, 700 and 694. Meanwhile, resistance on a bounce is at 717.50.
Broad market sectors on the decline this morning included, footwear, auto manufacturers, tire and rubber stocks, farm machinery, diverse financial services and auto parts shares. Sectors on the rise were few and far between, but retail home builders and gold stocks were faring well despite the overall steep stock market decline.
Small-cap stocks on the move this morning include Mission West Properties (NYSE:MSW), which tumbled about 8% to two-month lows. Security Bank Corp. (Nasdaq:SBKC) was off 9%, but has been on a huge rally in the month of June. Also, COMSYS IT Partners (Nasdaq:CITP) was down about 6%. On the upside, Photon Dynamics Inc. (Nasdaq:PHTN) soared 30% on news that the company will be purchased by Israeli firm Orbotech (Nasdaq:ORBK) for $290 million. Americas Car-Mart Inc. (Nasdaq:CRMT) rallied 13% on strong earnings news.
