Russell remains under pressure
After opening higher on the government’s plan to ease going concerns surrounding Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), small caps came under pressure 30 minutes into the session and remain submerged midday, as apprehension concerning the financial sector took the forefront.
At 1:23 p.m. ET., the Russell 2000 (NYSE:IWM) skidded 11.29, or 1.67%, to 663.66, while the Dow lost 58.54, or 0.53%, to 11,042.
In an effort to restore confidence in the nation’s largest mortgage insurers Fannie Mae and Freddie Mac, the U.S. Treasury and the Federal Reserve devised a plan over the weekend in which an increase in a treasury line of credit would be extended temporarily. Additionally, as part of the plan the Fed would take on a consultant role. After both mortgage giants saw their share prices lopped off by some 45% last week, midday, Fannie shares were off a slight 2.44% midday, while Freddie stock has reversed course to slip 4.65%.
However, the plan constructed to pacify an otherwise panicked market soon gave way to concerns about the government’s ability to battle further financial debacles. Investors worry how many potentially more innovative or practical backstops the government has up its sleeve.
The plan comes on the heels of IndyMac’s (NYSE:IMB) failure on Friday. IndyMac was repossessed by the federal regulators after one of the largest thrift/mortgage banks failed to cover a run by depositors, becoming the third largest banking failure in U.S. history.
In corporate news, the nation’s largest brewer Anheuser-Busch Co. (NYSE:BUD) said that it will embrace a takeover from Belgian brewer InBev NV for approximately $52 billion, one of the few positive market indicators of the day. Merger activity typically creates bullish momentum among investors, as seen in the wake of the booming deal days of 2007. If there are deals in the making among large caps, then there are also bargains to be found in the small caps.
Oil has become overshadowed today. The commodity remains flat mid-session, while the dollar is mixed.
Industry groups on the rise midday include gold and silver, alcoholic beverages — in the wake of Anheuser-Busch’s takeover — and metal mining, while regional banks, savings and loans and retail home improvement services saw the most selling pressure.
In small-cap headlines, Qiao Xing Universal Telephone, Inc. (Nasdaq:XING) is surging 28% in midday trading after the telecommunications company said early Monday that its 2007 net sales rose 20% to $531.1 million. Fiscal year earnings jumped $123.9 million, or $3.42 per share, from a loss in 2006.
Sequenom Inc. (Nasdaq:SQNM) is up more than 7% to a 52-week high midday after Lazard Capital raised its price target to $26 from $20 on the genetics and molecular diagnostic company.
Flagstar Bancorp, Inc. (NYSE:FBC) is up 13% after one of the largest savings and loans banks in the Midwest announced second-quarter net income expectations early Monday that toped the consensus on Wall Street. Flagstar is currently trading at its highest level since late June.
On the downside, a list of percentage losers was dominated by small banks and financial firms.
