Small caps rally big
The Russell 2000 (NYSE: IWM) posted the largest percentage gain as the major U.S. rallied on news of a plan to ease the pain on subprime borrowers. The small-cap index added 21.31 points, or 2.78%, to 786.95. The Dow Jones Industrial Average (INDU) moved up 174.93 points, or 1.30%, to 13,619.89.
On a year-to-date basis, the Russell 2000 is off 0.06%, while the Dow has climbed 9.18% and the S&P 500 has advanced 6.41%.
The bulls completely dominated today on news that the U.S. government is introducing measures to prevent struggling borrowers with subprime adjustable-rate mortgages from entering foreclosure.
The plan, unveiled by the Bush Administration after the start of trading, will freeze the rates on some subprime mortgages with adjustable rate loans that are set to shift to higher rates, forcing many homeowners into foreclosure. The interest rates on more than one million mortgages will reset higher in 2008, potentially overwhelming borrowers who are currently struggling to make their monthly payments.
Stocks opened strong as investors anticipated news of the relief plan, which has yet to be voted on by the U.S. Congress, with the rally gaining speed after President Bush’s press conference.
As if on cue, the statistics reported by the Mortgage Bankers Association today showed the dire state of the U.S. housing market.
The Washington, D.C.-based trade association said that for the three months ended Sept. 30 the number of mortgage loans at least 30 days past due is at its highest level in more than 20 years. Additionally, 0.78% of mortgages have begun the foreclosure process, more than twice the rate a year ago.
The slump in the housing sector began in the second half of 2006 and has led to a wave of foreclosures, swelling the inventory of unsold homes, leading to further price declines. Financial institutions have since taken a hit as securities backed by subprime loans became virtually worthless, leaving banks with billions in losses and causing a credit squeeze.
Elsewhere, numbers released by the U.S. Labor Department point to a slight weakening of the labor market.
The number of unemployment claims for the week ended Dec. 1 was 338,000, a decrease of 15,000 from the previous week’s upwardly revised figure of 353,000. Wall Street was expecting to see a slightly larger decline.
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Fleetwood Enterprises, Inc. (FLE), up 29% to $6.23 on news of a narrower fiscal second-quarter loss.
• Methode Electronics, Inc. (MEI), up 28% to $14.60 on news that fiscal second-quarter profit beat expectations.
• Hoku Scientific, Inc. (HOKU), up 21% to $10.72 on news it will borrow up to $185 million for the construction of a polysilicon production plant.
Biggest percentage losers:
• Innovative Solutions and Support, Inc. (ISSC) down 20% to $10.93 on news of a wider fiscal fourth-quarter loss.
• BabyUniverse, Inc. (KIDS) down 17% to $7.87.
• China Natural Resources Inc. (CHNR), down 16% to $26.40.
Volume leaders:
• China Precision Steel, Inc. (CPSL) 12,995,900 shares traded.
• Hoku Scientific, Inc. (HOKU) 9,459,500 shares traded.
• Hovnanian Enterprises, Inc. (HOV) 6,333,400 shares traded.
The day saw 40 small-cap stocks set 52-week lows, while 25 small caps established 52-week highs.
