Small caps swoon in June below two-month low
After plunging out of the gate this morning, small-cap stocks continue to bleed mid-session, besieged by a continued troubling outlook for financials, disappointing guidance by tech heavyweights, a lackluster outlook for the auto sector and a slowing economy — all of which sparked concern for suppressed corporate earnings for the near foreseeable future.
At 1:19 p.m. ET, the Russell 2000 (NYSE:IWM) was down 16.70, or 2.33%, to 699.60, tumbling below a two-month low on April 22. The Dow skidded 241.58, or 2.05%, to reach a low for the year of 11,570.25, while the Nasdaq swooned 61.92, or 2.58%, to 2339.34.
Stocks are under pressure after Goldman Sachs downgraded the brokerage sector to “neutral” from “attractive,” citing a lack of positive catalysts going forward and eroding fundamentals. Goldman claims that investors are focusing more than needed on the possibility of another major bank collapse. The investment bank also downgraded Dow component Citigroup (NYSE:C) to “sell,” pushing the bank down 5% midday. Merrill Lynch (NYSE:MER) shares were off 4%, joining the weakness seen in financial shares after the opening.
Fresh concerns surrounding the health of the auto industry have also surfaced after Goldman Sachs lowered its rating on General Motors Corp. (NYSE:GM) to “sell” from “neutral,” sending shares sinking 10% mid-session.
The tech-heavy Nasdaq has been battered the most today, dragged down by disappointing guidance from tech juggernauts Research in Motion (Nasdaq:RIMM) and Oracle Corp. (Nasdaq:ORCL). Research in Motion said its revenue and earnings doubled, but cautioned that earnings could come under pressure as it ramps up spending. JMP Securities downgraded the blackberry maker today to "market perform" from "market outperform." Oracle posted solid quarterly results, but provided a cautious outlook for the next quarter. Shares for the third-largest software maker were off 3% midday.
In economic news, GDP for the first quarter was upwardly revised to 1%, as expected. The figure is dated as we near the end of the second quarter, but does indicate that the economy did not slide into negative growth to start 2008. Weekly claims figures rose to 384,000 in the latest week, which was slightly above the forecast. Existing home sales clocked in better than expected at plus 2%, with an annual rate of 4.99 million units.
In company specific news on the housing front, homebuilder Lennar (NYSE:LEN) said it recorded a net loss for its second quarter that narrowed from the same year-ago period, however, cautioned that a continued anemic housing market will weigh on the company.
“With a wall of worry keeping a wall of money on the sidelines for stocks, there is no positive theme at this time for investors to get up and invest,” Andy Busch, foreign exchange strategist for BMO Capital Markets said in an email. “I'm an optimist and even my predictions for a stabilization of the housing market will take three to four months starting now to reduce inventories. The Fed looks to be tap dancing through a mine field of inflation and weak growth with no one happy with the outcome.”
Stocks were also funneled lower by a $3-plus spike in crude oil prices after OPEC’s president stated that oil prices could leap above $150 a barrel and Libya announced it might slash oil production. The greenback was lower against the euro and the yen, while gold climbed $32 mid-session.
Among other large-cap stocks in the news, Anheuser-Busch (NYSE:BYD) is expected to rebuff InBev's $46 billion bid for the beer maker, setting the stage for a hostile takeover by the Brazilian-Belgian company. The world’s largest maker of athletic apparel and tennis shoes Nike (NYSE:NKE) posted solid earnings overnight after Wednesday’s close.
In broader industry groups and sectors, consumer cyclicals, technology and casinos are groups leading the market lower mid-session, while gold and silver and textiles are the only two groups in the green midday.
Small-cap stocks on the move mid-session include, Photon Dynamics, Inc. (Nasdaq:PHTN), which is soaring 31% after the provider of products for the flat panel display industry said this morning that Israel-based Orbotech Ltd. (Nasdaq:ORBK) will buy it for $290 million. Shares of Targanta Therapeutics Corp. (Nasdaq:TARG) are up 22% midday after the biopharmaceutical company said today that the European Medicines Agency will review its drug Oritavancin for the treatment of complicated skin and soft tissue infections, a move toward a commercial launch of its product.
On the downside, China Sunergy Co., Ltd. (Nasdaq:CSUN) has given up 13% after the manufacturer of solar cell products said this morning that it has priced an offering of $50 million of convertible senior unsecured notes.
