Small caps continue slide on jump in unemployment rate
After a smack-down on Thursday small-cap stocks continued their slide into Friday. The Russell 2000 remained submerged midday after the unemployment rate jumped more-than-forecasted, adding to the economic case against the economy.
At 1:32 p.m. ET, the Russell 2000 (NYSE:IWM) was down 6.11, or 0.85%, at 712.51, off its lows of the session.
The jobs data disseminated from the Labor Department this morning sent equities into a tailspin, as the nation’s unemployment unexpectedly jumped to the highest level since December 2003. Unemployment rose to 6.1% from 5.7%, while economists were forecasting the rate to clock in roughly flat. Adding to the gloomy jobs report, non-farm declined by 84,000, wider than the forecasted decline of 75,000 jobs. This marked the eighth consecutive monthly decline in payrolls, which hasn’t happened since the 2001 to 2002 time frame.
“So far this year, 605,000 jobs have been lost,” Steven Wood, chief economist with Insight Economics, said in an email. “The economy has clearly slipped into a jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy. Over the past year, the number of unemployed people has increased by more than 2.24 million and the unemployment rate has increased by 1.4 percentage point. In the post World War II period, every time the unemployment rate has jumped by a full percentage point or more in the course of a year, the economy has been in a recession.”
With the spotlight on the jobs market, oil’s slide midday did little to change the market’s direction. Crude oil futures had slid about $2 a barrel to $105 and change midday, as oil traders sold off the commodity in the face of weakening demand worldwide. The greenback was mixed against the euro and the yen. The euro had climbed to $1.4257 midday.
The market also overlooked that home foreclosures grew at the most rapid pace in nearly 30 years during the second quarter, as tough credit conditions persisted.
“Overall, U.S. stocks are getting hit hard to start and will continue to be under pressure,” said BMO Capital Markets foreign exchange strategist Andy Busch. “I look for more analysts or companies to lower their earnings expectations not only for the third quarter, but for the fourth quarter as well.”
And the hacking has already begun. In corporate news, Nokia (NYSE:NOK), the world’s largest cell-phone maker, slashed its outlook, sending the tech laden Nasdaq down 9.69 points midday. On the financials front, Merrill Lynch (NYSE:MER) was downgraded by rival investment bank Goldman Sachs.
Breaking the mold today, deal activity is propelling some large-cap equities higher. Samsung Electronics is said to be considering an offer from chipmaker SanDisk, while UST (NYSE:UST) was reported by the New York Times to be a takeover target by Altria Group (NYSE:MO).
In broader industry groups, real estate services, full line insurance and banks were actually among the few gaining ground while, nonferrous metals, forestry and pipelines were leading the market lower.
Individual small caps of note include Calavo Growers (Nasdaq:CVGW), which was down 11% midday, hitting a new 52-week low, after the avocado and perishable produce item provider reported fiscal 2008 third-quarter revenue that fell below at least one analyst's expectations. Looking ahead, Calavo also said it does not expect to realize fully the benefits of the downward trend in Mexican fruit prices during the fiscal fourth quarter.
Shares of Pike Electric (NYSE:PEC) plunged by nearly 20% mid-session after the Mount Airy, N.C.-based company projected it would earn less than expected in its upcoming fiscal year.
ABM Industries (NYSE:ABM) tumbled almost 20% after the company issued a narrowed fiscal 2008 guidance and said that it had earned less in its fiscal third quarter than at least one analyst was projecting.
On the upside, shares of Hoku Scientific, Inc. (Nasdaq:HOKU) had gained 13% midday after the polysilicon provider said after Thursday’s close that its subsidiary, Hoku Materials, signed a new contract and terminated three old ones.
