Small caps fall as rally fizzles
The Russell 2000 (NYSE: IWM) has fallen far below the flat line as the morning rally on Wall Street goes into reverse. At 2:16 p.m. ET, the small-cap index had fallen 7.04 points, or 0.94%, to 743.29. The Dow Jones Industrial Average (INDU) was down 56.49 points, or 0.44%, to 12,901.95.
At about 12 p.m. ET, small-cap stocks abruptly lost steam and nosedived into negative territory, where they have since been joined by the other major U.S. indices.
The apparent reason for the sharp drop is a decline in financial stocks as investors once again turned their attention to the credit problems stemming from the meltdown in the subprime mortgage sector.
Before the start of trading today, Freddie Mac (NYSE: FRE), a government-chartered company that buys U.S. mortgages, reported a record quarterly loss and warned that it may have to cut its dividend.
A number of financial institutions have taken a hit in recent months as declining house prices and a wave of foreclosures and delinquencies made securities backed by subprime mortgages essentially worthless.
Morning trading was dominated by the bulls following news of a report from the U.S. Census Bureau that housing starts surprisingly increased 3% in October, after a fall of 11.4% in September.
Elsewhere, the price of oil has added $3.39 to $98.03 a barrel.
The sharp increase is partially due to a decline in the dollar, as oil and many other commodities are denominated in dollars. The U.S. currency can currently be exchanged for 0.6763 euros, below the level of 0.682 euros earlier today.
Here are the current biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• General Moly Inc. (GMO), up 18% on news that steelmaker ArcelorMittal (MT) will buy a 12.6% stake.
• iGATE Corp. (IGTE), up 15% on news of an analyst upgrade.
• Restoration Hardware Inc. (RSTO), up 12% on news Sears Holdings Corp. (SHLD) has bought a stake in the company.
Biggest percentage losers:
• Noah Education Holdings Ltd. (NED), down 35% despite news of a rise in fiscal first-quarter profit.
• Deswell Industries Inc. (DSWL), down 25% on news that fiscal second-quarter earnings missed analysts’ expectations.
• Akeena Solar Inc. (AKNS), down 17% following news that analyst coverage was initiated with a rating of “neutral.”
