Small caps stumbling
The Russell 2000 (NYSE: IWM) is falling as investors take a dim view of the state of the U.S. housing market. At 1:53 p.m. ET, the small-cap index was down 3.57 points, or 0.49%, to 720.38. The Dow Jones Industrial Average (INDU) was up 3.41 points, or 0.03%, to 12,830.90.
Stocks have trimmed their morning gains and small caps have fallen in the red following news that Countrywide Financial Corp. (NYSE: CFC), the biggest U.S. mortgage lender, is facing swelling debt-protection costs.
There’s speculation that the Calabasas, Calif.-based company, which had liquidity problems last summer due to the meltdown in the subprime mortgage sector, could file for bankruptcy later this week.
That’s a stark reminder of the depth and size of the mess in the subprime mortgage sector, which began as U.S. home prices started to decline in the second half of 2006, leading to a wave of foreclosures and loan delinquencies.
A number of mortgage lenders have called it quits since then, but Countrywide will potentially be the biggest casualty yet.
That has apparently spooked investors.
Shortly after the start of trading the National Association of Realtors reported that pending U.S. home sales fell a more-than-expected 2.6% in November to a reading of 87.6. The October reading was an upwardly revised 89.9. The figure for September was also revised higher.
Some observers saw a silver lining, saying that the numbers indicate that existing-home sales will hold steady in the coming months before rising late in the year.
But others point out that the data point to a housing market stagnation that has no end in sight.
“It seems all but certain that residential investment also declined in the fourth quarter of 2007,” said Eric Rosengren, president of the Federal Reserve Bank of Boston, in a speech to the Connecticut Business and Industry Association this afternoon. “Many economic forecasts expect residential investment to continue to decline at least through the first half of 2008.”
But Rosengren made sure to stay away from predicting a recession.
“Previous periods where residential investment declined for a year or more were either accompanied by, or closely followed by, an economic downturn,” he said. “But history may or may not repeat itself.”
Here are the current biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Pharmasset, Inc. (VRUS), up 28% despite news of an analyst downgrade.
• PROS Holdings, Inc. (PRO), up 14%.
• DivX Inc. (DIVX), up 14% on news that Sony Corp. (SNE) will offer video content on the DivX format.
Biggest percentage losers:
• Measurement Specialties, Inc. (MEAS), down 22% on news it has lowered its guidance for fiscal 2008.
• COMSYS IT Partners, Inc. (CITP), down 12%.
• Triad Guaranty Inc. (TGIC), down 14%.
