Small caps sink as retail sales fall
The Russell 2000 (NYSE: IWM) posted a steep decline today on news of an unexpected decline in U.S. retail sales and a scare from the financial sector. The small-cap index tumbled 15.05 points, or 2.11%, to 697.43, its lowest closing level in more than one year. The Dow Jones Industrial Average (INDU) fell 277.04 points, or 2.17%, to 12,501.11.
On a year-to-date basis, the Russell 2000 is down 8.96%, while the Dow has lost 5.76% and the S&P 500 has retreated 5.95%.
The odds of a U.S. economic recession increased today and Wall Street responded with a major sell-off.
The bears dominated from the start of trading following news from the U.S. Census Bureau that retail sales in December fell 0.4%, defying expectations of a rise of 0.1%. Sales for November were revised down to a gain of 1% from an initially reported 1.2%.
Purchases excluding automobiles also surprised economists, falling 0.4% instead of posting an increase of 0.1%.
A pullback in consumer spending, which comprises about 70% of U.S. gross domestic product, is a scary development for an economy already besieged by stagnating home prices, higher energy costs and a tightening of credit.
So far this year we have seen the unemployment rate climb to 5% from 4.7% as hiring slowed down significantly in December 2007. It is perhaps not surprising then that on Monday credit card issuer American Express Co. (NYSE: AXP), announced that its card members have become more frugal.
The worst case scenario is that Americans will curtail their spending, virtually guaranteeing a recession.
As if that was not enough to spook investors, Citigroup Inc. (NYSE: C) announced that it swung to a record fourth-quarter loss of $9.83 billion, or $1.99 per share, compared with a profit of $5.13 billion, or $1.03 per share, a year earlier.
The largest U.S. bank also reported that it is cutting over 4,000 jobs and has incurred $18.1 billion in pretax write-downs and credit costs. Citigroup turned to overseas investors for a cash infusion of $14.5 billion to bolster its financial position.
The only good news for the bulls is that today’s retail numbers all but assure that the U.S. Federal Reserve will move to lower the federal funds rate when it begins a two-day meeting on Jan. 29.
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:
• Ocwen Financial Corp. (OCN), up 53% to $6.09 on news the company has received a takeover bid to go private for $7 a share.
• Lifecore Biomedical, Inc. (LCBM), up 31% to $16.76 on news it will be acquired by private equity firm Warburg Pincus for about $239 million.
• Matria Healthcare, Inc. (MATR), up 20% to $29.34 on news it will pursue strategic options, including a possible sale.
Biggest percentage losers:
• MoneyGram International, Inc. (MGI), down 49% to $6.15 on news it has received a cash infusion from an investment firm.
• CNinsure Inc. (CISG), down 20% to $10.28.
• Netezza Corp. (NZ), down 19% to $9.63 despite news it has been selected by retailer Gander Mountain Co. (GMTN) to provide inventory solutions.
Volume leaders:
• MoneyGram International, Inc. (MGI) 18,867,800 shares traded.
• Dendreon Corp. (DNDN) 10,284,000 shares traded.
• Ocwen Financial Corp. (OCN) 6,502,900 shares traded.
The day saw 169 small-cap stocks set 52-week lows, while three small caps established a 52-week high.
