Small caps sink as investors fret about economy
Small-cap stocks went into freefall mode through midday trading as investors fretted about the state of the U.S. economy and even the global picture ahead of Friday’s key employment report. A bevy of mixed economic indicators this morning only served to stoke this jitters. At 12:49 p.m. ET, the Russell 2000 (NYSE:IWM) was down 18.70, or 2.52%, at 723.21.
Today’s decline was impressively broad-based; index products on homebuilders, retailers, airlines, financials, energy, industrial, banking and drug stocks were all deep in the red, with consumer staples one of the few themes higher…and even those gains were lean.
The stock market was already trading lower heading into the opening as overseas equities were sinking, but the selling mood darkened as a private employment report came in below expectations. The ADP employment report came in at minus 33,000, which was below the forecast for a decline of 20,000. Even though the ADP report hasn’t been a very reliable gauge for the Labor Department release, it was still enough of a scare to keep buyers on the sidelines and to spook out longs ahead of Friday morning. A separate report on the non-manufacturing sector actually topped the estimate, but a sub-index within that date series on employment tumbled, which effectively snuffed out any optimism about the headline figure.
In addition to the worries about economic conditions in the U.S., the head of the European Central Bank made several dovish comments, which only fanned concerns about the global state of things. The inflation-fighting sabers of the ECB have been sheathed amid gloom over growth prospects (or lack thereof), Japan growth is struggling and there is even talk of a stimulus plan for China – which has been booming for years. It’s enough to chase investors away from equities and into safe-haven outlets, and sure enough, Treasury bonds and notes have been climbing today as the yield on the benchmark 10-year note tumbled to the lowest point since mid-April.
Looking at individual small-caps of note, Spectranetics Corp. (Nasdaq:SPNC) was collapsing, down 47% while tumbling to fresh move and 52-week-plus lows. Opnext Inc. (Nasdaq:OPXT) tumbled 13% and Blyth Inc. (NYSE:BTH) was off 23% after earnings missed the mark and the firm lowered it’s 2009 outlook.
Today’s slide in the Russell pressed small-caps back below chart support at 726, and the next key level to watch is at 720.50. A decisive breach of 720 would suggest a possible test of the 690 zone in the weeks to come (although there are support probes along the way at 716.60, 711.50 and 701). If the market can somehow stage a heroic afternoon recovery, resistance is at 734, then at 742.
