Small caps open lower on earnings worries
Small-cap stocks gave back a sizable chunk of Monday’s big rally early on today, pressured by concerns that corporate profits are already sloppy and will be further strained by a weak economy going forward. At 9:54 a.m. ET, the Russell 2000 (NYSE:IWM) was down 8.46, or 1.55%, at 538.37.
With no economic reports on tap today, the market will focus on the wave of quarterly earnings coming in. Although the earnings news has been mixed so far, investors clearly are concerned that even the upside surprises were already tainted by very low projections or will be pinched to perform into what appears to be a difficult 2009.
The lift small caps enjoyed Monday from the energy sector appeared on the wane today, with crude oil prices slipping on concerns about demand. Also, commodities in general were likely to be on the defensive as the U.S. dollar was soaring against the euro, climbing 1.25%, which makes commodities priced in dollar terms more expensive (and less attractive to foreign buyers).
Around the world overnight, stocks were mixed, with Japan up 3.3%, Hong Kong down 1.8%, China off 0.8%, Taiwan up 0.2%, Australia up 3.8%, Singapore down 0.9%, South Korea down 1% and India up 4.5%. Europe was in positive territory on news that France would pour some 10.5 billion euros into the banking arena, but the early slide in the U.S. market pulled down Europe.
Back to the earnings story, the one that really seemed to sum up the market sentiment this morning was Texas Instruments Inc. (NYSE:TXN). TXN shares were off 9% shortly after the open as the company projected earnings for the upcoming quarter well below the forecast, which reflects the difficult operating environment for tech companies amid a slumping economy. Also in the tech arena, Sun Microsystems Inc. (Nasdaq:JAVA) took a big hit, sinking 13% early on after earnings news disappointed.
Even though the market focused on the cautious side of the earnings front this morning, there were positive reports from 3M Company (NYSE:MMM), Pfizer Inc. (NYSE:PFE) and Schering Plough Corp. (NYSE:SGP). Pharma could be one of the better-performing sectors to watch today, and has seen a few strong performers in the small-cap arena in recent days as well.
On the financial front, analysts at Goldman Sachs downgraded Citigroup Inc. (NYSE:C) to a “sell” rating, and C stock slumped 2% on the open. American Express Co. (NYSE:AXP) beat the forecast but had a gloomy outlook going forward and AXP was off 0.6%. There was a brief upside pop off the lows in stock index futures right ahead of the opening when the Federal Reserve announced that they have opened a new facility to fund commercial paper from money market mutual funds, but the support seemed short-lived.
From a money flow standpoint, Treasury products were higher, which drove the yield on benchmark 10-year notes down some 2%. Investors appeared to be avoiding riskier stock and commodity assets in favor of credit instruments.
Individual small caps of note this morning included Highveld Steel & Vanadium Corporation Ltd. (Nasdaq:HSVLY), which was down 15%to fresh move lows. ENGlobal Corp. (Nasdaq:ENG) was down some 14% as the company announced preliminary results that were hurt by Hurricanes Ike and Gustav.
