Small caps drop on credit fears
The Russell 2000 (NYSE: IWM) has declined steeply on news of poor corporate earnings and credit fears stemming from troubled U.S. housing sector.
At 11:04 a.m. ET, the small-cap index was down 18.05 points, or 2.35%, to 751.45. The Dow Jones Industrial Average (INDU) had lost 158.19 points, or 1.20%, to 13,018.60.
The bears came out in full force this morning following news before the start of trading that investment bank Goldman Sachs Group, Inc. (NYSE: GS) downgraded financial services giant Citigroup Inc. (NYSE: C) to “sell” from “neutral” on fears that it could suffer up to $15 billion in write-downs on collateralized debt obligations over the next two quarters.
The financial sector has been aching in the wake of the meltdown in the subprime mortgage sector, which began after the U.S. housing prices started to stagnate in the second quarter of 2006.
News of the expected write-downs came as an unpleasant reminder that so far no one has been able to quantify the extent of the damage to the financial sector, but various estimates are calling for total losses of hundreds of billions of dollars.
The fact that the largest U.S. bank has been dealt a blow and added to the list of casualties tells us that the subprime mess is still working its way through the system and has the potential to inflict more pain.
A number of mortgage lenders have already declared bankruptcy and many financial institutions have tightened credit.
In other corporate news, Lowe’s Companies, Inc. (NYSE: LOW), the nation’s second largest home improvement retailer, announced before the opening that its third-quarter profit fell 10.2% and total sales increased a less-than-expected 3.2%.
The Mooresville, N.C.-based company blamed slowing home sales and falling home prices while also lowering its fourth-quarter and full-year outlook.
Here are the current biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Micrel, Inc. (MCRL), up 13% on news it has signed a contract to supply commercial solar cells.
• CAM Commerce Solutions Inc. (CADA), up 9% on news that fiscal fourth-quarter profit doubled.
• Encore Bancshares Inc. (EBTX), up 7%. A company representative could not be reached for comment.
Biggest percentage losers:
• Genesco Inc. (GCO), down 24% on news after the close on Friday that its merger with Finish Line Inc. (FINL) may be in trouble.
• U.S. Auto Parts Network (PRTS), down 14%. A company representative could not be reached for comment.
• Somaxon Pharmaceuticals Inc. (SOMX) down 14%. The company's investment relations representative could not be reached for comment.
