Small caps reeling as safe-havens swell, auto woes drag down stocks
Small-cap stocks fell hard Wednesday, with the Russell 2000 (NYSE:IWM) tumbling to fresh bear market lows while sinking to the lowest point since May 2003. Financials and commodities were hammered by investors, but there really were very few safe ports in today’s stock market storm. In fact, the desire for some kind of safe place to park cash played a role in the stock market’s descent as investors pulled money out of equities and put it in low-yielding credit instruments. The Russell lost 35.13, or 7.85%, to 412.38 and is now down 46% for 2008. Meanwhile, the Dow was off 5.07% for the day and is down 40% for the year and the S&P 500 was down 6.12% Wednesday and off 45% for 2008. Both the Dow and S&P 500 also made new closing lows for the move; the intraday low for the Dow from Oct. 10 is still intact, however.
There was some sense that the difficulty in crafting a rescue package for domestic automakers was hampering market psychology. It certainly didn’t do any good for General Motors Corp. (NYSE:GM) stock, which was off nearly 12%. Meanwhile, Ford Motor Co. (NYSE:F) was down 25%, trading well below $2 a share. While auto executives grovel for a handout from tongue-lashing lawmakers, the political hot potato bounces about without much progress, leading Senate Banking Committee chair Christopher Dodd to say that the chances for a bailout bill for automakers was “remote.”
In a fitting end to another bruising day in the stock market, the only broad S&P sector with a noteworthy gain was brewery companies. On the downside, automobile manufacturers were smashed, REITS were evicted from portfolios, health care facilities were anemic and former hot commodities like aluminum and coal were running cold.
Elsewhere on the commodities scene, crude oil prices actually edged higher, breaking free of the lock-step equities trade that had been in place of late as the onset of colder weather boosted physical energy prices. Still, it didn’t do much to heat up energy stocks, as the Energy Select Sector SPDR Fund slipped 5.4%. Even the cattle market was slaughtered today, with futures for December delivery collapsing 3.3% to new contract lows, while prices on some continuous charts were at two-year lows. If you’re not looking to put depleted cash reserves in Treasuries, maybe you can get a good price on a nice steak.
Another batch of weak economic today data played into the overall gloom, even though it wasn’t exactly a surprise. Housing starts fell to a record low, while building permits for single-family homes tumbled to the lowest point in 26 years. On the inflation front, consumer prices reported the largest decline in 61 years of data collection, which opens a Pandora’s Box about deflationary concerns. Then, the release of FOMC minutes this afternoon simply reflected concerns that monetary policy makers are worried about economic contraction. All of which just makes Treasury products seem even more attractive.
Speaking of Treasury markets, the yield on benchmark 10-year notes collapsed some 4.5% today and the yield on five-year notes hit a five-year low. Since the yield moves inverse to price, that means investors were bidding up prices on Treasury products aggressively as they shun stocks for a safer alternative. Along that line of thought, money market fund assets rose $55.6 billion to a record $3.596 trillion in the latest week. With inflation forces at an ebb, the demand for fixed income products also rises. And even an inflation-favored product like gold seems to be benefiting from the safe-haven push; the World Gold Council today said that hoarding of gold products resulted in a hefty 18% jump in global gold demand in the third quarter.
Individual small caps taking a hit today were highlighted by Lincoln National Corp. (NYSE:LNC), which tumbled 39% as the insurer said it anticipated a charge of $300 million or more from declining equity markets. Just two days ago, LNC applied for Treasury approval to participate in the TARP. DryShips Inc. (Nasdaq:DRYS), slumped 34% as the commodities marine transportation firm set 52-week lows. Genesco Inc. (NYSE:GCO), fell 36% as the shoe and hat retailer saw shares sink to six-year lows after the firm lowered guidance Tuesday. Rockwood Holdings Inc. (NYSE:ROC), fell 27% as the chemical maker may have been caught in the after wash from overnight action when BASF -- the world’s largest chemicals maker –- slashed it’s profit outlook and announced production cutbacks stirred by a rapid decline in demand.
The chart picture for small caps is decidedly one-dimensional, with all the power and the dynamic long-term patterns pointing to further decay. Even some of the positive formations on daily charts have been smashed with alarming regularity lately. Today’s decline pushed the market below our 50% recession target, which means one of two things: either it’s time to calculate another downside objective, or the market should be closing on a place of value. As for Thursday’s session, there are several economic indicators in the morning, including weekly unemployment claims at 8:30 am ET, then leading indicators and the Philly Fed Survey at 10:00 am ET.
