Small caps cautiously edge up
After a rocky finish to Wednesday’s trading, small-cap stocks are slightly higher midday Thursday on encouraging congressional testimony from Federal Reserve Chairman Ben Bernanke, though woes in the U.S. mortgage and housing industries continue to pressure stocks.
At 1:14 p.m. ET, the Russell 2000 (NYSE:IWM) was up 7.50, or 1.13%, at 671.25, while the Dow was up 63.43, or 0.57%, at 11,210.87.
Bernanke spoke before the House Financial Services Committee and encouraged the government to update its outdated financial regulation system. Bernanke, along with Treasury Secretary Henry Paulson, urged the government to create a safety net that would minimize a failing bank’s impact on the broader economy.
"In light of the Bear Stearns episode, Congress may wish to consider whether new tools are needed for ensuring an orderly liquidation of a systemically important securities firm that is on the verge of bankruptcy, together with a more formal process for deciding when to use those tools," Bernanke said.
Paulson added that major mortgage lenders Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) will be able to recover from this rough patch, and that he had been informed that both Fannie and Freddie have enough capital. Shares of the mortgage companies sank by midday, though, with Fannie Mae falling 10% and Freddie Mac skidding 20%. The mortgage giants’ woes dragged down many financial stocks amid worries the banking crisis is far from over.
Not helping calm investors was a RealtyTrac Inc. report early in the day that showed U.S. foreclosure filings grew 53% in June from the prior year. Bank repossessions soared the most since the company began collecting data in 2005.
While oil fell out of the spotlight, a barrel of crude crept up to $137.36, an increase of $1.31 from Wednesday’s close. Oil producing group OPEC said it could not restore supplies if Iran were attacked and opted to take its crude off the market. Also adding to energy concerns were statements from a militant group in Nigeria that threatened to attack the country’s oil-rich river delta region. Nigeria is the biggest crude producer in Africa.
Other stocks making large-cap news include Dow Chemical’s (NYSE:DOW) and its planned acquisition of Rohm and Haas (NYSE:ROH) for $18.8 billion. Rohm and Haas skyrocketed 65% by midday on volume nearly 16 times the average number of shares.
Pilgrim’s Pride Corp. (NYSE:PPC) jumped more than 15% after Credit Suisse issued an alert to clients encouraging them to go long on Pilgrim's as signs that the chicken industry is curtailing oversupply issues.
Orient-Express Hotels Ltd. (NYSE:OEH) dropped nearly 12% to a 52-week low as high oil prices have curtailed travel and an Oppenheimer analyst said the hotel industry would likely continue to experience troubles.
At mid-session, broad market sectors on the rise were chemicals, plastics and rubber, gold and silver, and oil and gas operations. Shifting downward were hotels and motels, casinos and gaming, and retail services.
Among small-cap stocks grabbing headlines was FCStone Group Inc. (Nasdaq:FCSX), which has fallen more than 45% since the company announced earlier today its third-quarter profits had dropped. SmallCapInvestor.com spotlight company Rubicon Technology Inc. (Nasdaq:RBCN) is up more than 10% today after William Blair & Company initiated the stock just after the open with an “outperform” rating. Penford Corp. (Nasdaq:PENX) is down 12% after reporting early in the day that its third-quarter earnings dropped, widely missing Wall Street’s expectations.
