Small-cap carnage amid tech rout, soaring crude
Small-cap stocks collapsed Thursday, unable to muster a fight against tremendous headwinds from a dramatic slide in tech stocks and record-high crude oil prices. The Russell 2000 (NYSE:IWM) shed 17.88, or 2.50%, to 698.42, the lowest daily close since the tax man came calling April 15.
As far as intense selling episodes go, today’s unraveling marked the seventh-largest one-day point slide of the year and just the ninth time that the Russell generated a decline of 2.50% or more. While small caps were at the lowest point since mid-April, the Dow has been in a selling fury of late and now stands at the lowest level since September 2006. And while small caps were enduring a painful 2.50% loss today, the Nasdaq 100 crumbled more than 4%, so there were some minor signs of index related strength to be found for small-cap holders, but it was more of a “glass half empty” argument, at least for today.
The selling fury in tech stocks clearly spilled over into the entire market psyche, and was headlined by a 13.2% tumble in Research in Motion (Nasdaq:RIMM) shares, which gapped lower when the company lowered forward guidance and never looked back. In all fairness to the makers of the BlackBerry, their stock hit all-time highs just last week. Also on the tech front, software giant Oracle (Nasdaq:ORCL) slipped 5% despite decent quarterly results as the market focused on a gloomier outlook from the firm.
And it wasn’t as if today’s rout was only powered by tech shares. The selling fury cut a wide swath across many sectors, with financial stocks taking a big hit once again, auto manufacturers sinking and even athletic apparel firms falling out of favor with the bulls. As for financials, the day started in a dark mood when European bank Fortis announced it would cancel dividends and embark to raise capital, sparking a 10% decline in that stock. The selling momentum gained steam when influential researchers at Goldman Sachs issued dour projections for Citigroup (NYSE:C) and Merrill Lynch (NYSE:MER) and those stocks tumbled 6.2% and 6.8%, respectively. Goldman also downgraded General Motors Corp. (NYSE:GM) and the stock absolutely hit the quicksand, sinking 10.7%. GM ended the day valued at just $11.43 a share, down from a peak at $43.20 last October.
As for the aforementioned athletic apparel firm? Well, Nike (NYSE:NKE), the world’s largest apparel and tennis shoe maker, absorbed a 9.8% decline when the firm said that orders from U.S. accounts were flat.
There is an old saying in the market that “it is always darkest before the dawn” and investors and market pundits alike will now embark on the process of trying to decide when the worst has been priced into things.
“I think the market is probably in the seventh or eighth inning of the current sell off,” Nick Kalivas, market strategist with MF Global, said in an email interview. “However, major rallies are unlikely until the profit picture changes. Right now, the market has no driver; non-financial profit growth is flagging and financial profit growth is weak. The Dow already took out the March lows and small caps will follow,” Kalivas said.
As the market quickly approaches quarter-end, Kalivas said that financials could see a short-covering play and that portfolio types would want to show ownership of energy shares, and that it could be interesting the next couple of sessions to see if those events play out.
Looking ahead to Friday’s session, the market will get a chance to respond to personal income data ahead of the regular opening, and then the Michigan sentiment figures will come out near 10:00 a.m. ET. Also, Kalivas said to watch how the market responds to earnings news from Accenture (NYSE:ACN) overnight. If a positive surprise comes out of ACN, then it could help balance some of the weakness tied to ORCL and RIMM from today’s slump.
With so much going on today during the steep slide in stocks, it was easy to overlook a fresh batch of economic data, as three reports came and went with little fanfare this morning. The GDP report came in as expected and is very dated as it settles the score on final Q1 growth. The headline figure was at plus 1%, meaning the economy did not dip into any “official” recession to start 2008. Meanwhile, weekly claims figures rose to 384,000 in the latest week, which was slightly above the forecast, but which didn’t seem to matter much in lieu of a 1% slide already underway in after-hours stock derivatives trading. Finally, the existing home sales report came in better than expected at plus 2%, with an annual rate of 4.99 million units and sparked a very mild upside rise in stock index futures that had little impact on the huge slide already underway.
While it may have been easy to shrug off the economic reports today, it was impossible to ignore what was going on in crude oil, as the price of black gold shot to a new record high today above $140 dollars a barrel. In fact, the commodity story was a big part of today’s action in global asset pricing, with the Commodity Research Bureau Index jumping 2% to a record high and the iPath GSCI Total Return commodity fund surging 3.4% to a new record high as well. What’s more, gold shot up 3.7%, copper was in rally mode, and the corn market exploded up its daily trading limits to yet another new high, which means there is little relief in sight right now on consumers strapped to shell out cash to fill up the pump or buy food at the grocery store.
