Slide deepens as earnings disappoint
Small-cap stocks opened lower, and at 10:01 a.m. ET the Russell 2000 (NYSE:IWM) was down 9.43, or 1.31%, at 708.57. Small-cap issues paced the early slump in U.S. equities, as the Dow was only off about 0.6%.
The 10:00 a.m. ET release of Existing Home Sales data was on target with analyst forecasts and had very little immediate impact on the market.
The home sales was the first economic release so far this week, and given a dearth of economic data, the market has been focused on the never-ending run of quarterly earnings releases. From afar, the numbers haven’t really looked that great, but soft returns were expected, and so far the market is higher into the initial earnings push.
The latest batch of big-name earnings releases into today’s action served up a mixed bag, with Texas Instruments (NYSE:TXN) missing the forecast, while DuPont (NYSE:DD) beat the estimate. Texas Instruments was under selling pressure this morning, last down 4% after the chipmaker said the soft economy and sluggish demand for cell phones would hurt second-quarter results. DuPont’s strong earnings were fueled by agriculture products and overseas demand.
Commodity markets appear to be on a modest roll today, which could provide a boost to commodity-linked stocks if the trend remains in play throughout the session. Crude oil made new highs overnight and remains on a bid, lifted by civil unrest in producing state Nigeria, a refinery strike in Scotland and a Japanese tanker hit by rocket fire off the coast of Yemen. Gold and grains are also expected to hit the ground running in U.S. trading action this morning.
Financial shares in Europe were hit hard overnight, with the Royal Bank of Scotland and Barclays down in the 4% range as those banks navigate through the credit crunch and raise capital to write-down bad debt. Traders here continue to monitor the credit concerns and how they could impact the market, particularly after a Wall Street Journal story this weekend highlighted higher borrowing costs linked to a surge in LIBOR rates.
Goldman Sachs analyst Ed McKelvey addressed the LIBOR issue in an email this morning, saying, “Concerns that rising LIBOR rates could offset the economic stimulus from the upcoming $107 billion in tax rebates appear overblown. Although six-month LIBOR has risen about 50bp since the March 18 FOMC meeting, including 25bp in the latest week, a generous estimate of its impact on mortgage payments over the next six months is $5 billion (not annualized), less than 5% of the fiscal stimulus. The impact on business interest payments over this same period may be three- to four-times as large, but still not enough in our view to prompt big changes in business spending in the near term.”
The morning slide through 709 in the Russell now endangers the staying power of last week’s big advance, especially after retracing basically all of Friday’s big surge. The next chart support point is at 704, then at 695. If the market can stabilize as the day progresses, then resistance is at 714 and 724.
Among small-cap issues, large percentage losses were registered in Omnicell (Nasdaq:OMCL), which gapped lower and was down some 31% after sloppy earnings yesterday. In addition, VNUS Medical Technologies (Nasdaq:VNUS) was down some 18% after reporting quarterly results. Patriot Transportation Holdings (Nasdaq:PATR) was down about 12% without any apparent fresh news.
Meanwhile, large percentage gains were seen in Volterra Semiconductor Corp. (Nasdaq:VLTR), which was up 14% on strong earnings results. BioMimetic Therapeutics Inc. (Nasdaq:BMTI) gapped higher, and was up about 12% on news that the FDA would take no issue on a company study on foot and ankle fusions.
