Small caps in the red on financial sector concerns, crude and earnings
After opening lower, small-cap stocks have continued their steady decent, as concerns surrounding the financial sector, a rebound in crude oil prices and dismal corporate earnings overshadowed the Senate’s passage of the housing bill.
At 12:22 p.m. ET, the Russell 2000 (NYSE:IWM) was down 7.73, or 1.09%, to 702.61, while the Dow was down 125.46, or 1.1%, to 11,245.23.
Federal regulators seized two small banks over the weekend, which has cast a rain cloud over the financial sector today. The FDIC took over the First National Bank of Nevada and First Heritage Bank NA of California and sold the banks to Mutual Omaha Bank. Small banks dominated the list of largest percentage losers on the Nasdaq Exchange early this morning.
The bank seizures overshadowed the Senate’s passage of a housing bill on Saturday that creates a backstop for Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) should the mortgage lenders fall off a ledge. The legislation calls for an extension of a limitless line of credit for both firms for a year and a half and bestows authority to the Treasury department to purchase shares should the companies find themselves faced with insolvency.
Crude oil prices are pushing higher on the session, up $1.19 to $124 a barrel in midday action. The commodity is gaining ground on account of reports of attacks on oil pipelines in Nigeria and a fire at a Kuwait refinery.
In corporate news, Toyota slashed its global sales outlook on account of dried up demand in the U.S. market for trucks and SUVs. Tyson Food Inc. said its fiscal third-quarter net income sunk 92%, as the chicken and beef producer grapples with increasing grain costs used to raise chickens. Verizon Communications (NYSE:VZ) reported that second-quarter net income increased 12%, however, revenues fell short of the consensus view on Wall Street.
On the upside, Kraft Foods (NYSE:KFT) said its second-quarter bottom-line rose 4%, as the prepared food and beverage manufacturer was able to offset increased input costs on account of higher commodity prices with higher prices on its final goods.
It is a big week for earnings, with roughly 118 of the S&P 500 slated to report quarterly results.
One of the biggest percentage movers among large-caps this morning was Amgen Inc. (Nasdaq:AMGN), after the biotech company reported a trial for an osteoporosis drug went well. Also, private equity firm Kohlberg Kravis Roberts & Co. announced plans for an IPO, which suggested to some that the market outlook isn’t too bad.
Among broader industry groups, coal, office equipment and metal mining are among the few seeing upside midday, while printing services, airlines and schools are leading most other sectors lower.
Among individual small caps, Silicom Ltd. (Nasdaq:SILC) is slumping some 26% in midday trading after the server connectivity solutions provider reported a decline in second-quarter earnings, as the company saw purchases from its largest customer fall off. American Axle & Manufacturing Holdings Inc. (NYSE:AXL) is off 16% mid-session after KeyBanc Capital Markets downgraded the auto parts manufacturer to “hold” from “buy.” The research firm also lowered its full-year earnings outlook. The company has felt the pinch of high gas prices driving down auto sales, especially to its largest customer, General Motors (NYSE:GM).
On the upside, PAR Technology Corp. (NYSE:PTC) is up 10% midday after the technology services provider reported that it swung to a second-quarter profit from a year earlier.
