Stocks continue bleeding
After opening sharply lower, the Russell 2000 (NYSE:IWM), along with other major indices, remains besieged midday Friday after the credit crisis continued to ravage Wall Street.
At 1:45 p.m. ET, the Russell 2000 was down 1.91, or 0.27%, at 717.64, while the Dow sunk 136.54, or1.06%, to 12,730.24
Credit concerns were reignited after insurance juggernaut AIG (NYSE:AIG) reported a record loss after Thursday’s close, signaling that outside of Wall Street credit conditions have tightened further and the credit tempest isn’t showing signs of letting up.
“[AIG’s earnings] underscore that the credit crunch is ongoing,” said Andy Busch, foreign exchange strategist for BMO Capital Markets, in an interview. “I think we had gone through a period in which the earnings didn’t seem so bad and [now] we are getting earnings that are much larger as far as write downs go. People get nervous … when you have an earnings shock to any company.”
Compounding concerns, oil continued its skyward climb, hitting $126 a barrel midmorning on concerns that Venezuela could cut oil exports. Since then, oil has pulled back slightly to roughly $125 a barrel midday. Over the course of the week oil has climbed roughly $10 as global oil concerns continue to loom.
The dollar sunk to 1.5457 against the euro and 102.96 against the yen, as oil prices pushed higher. Gold gained $3.1 per ounce to settle around $885 midday.
“Gold is not at its peak like oil,” said Busch. “There’s an inflation component that’s there [with gold], but a lot of it was built into the expectations when you got it up over $1,000. Once you got it there [people wondered] what’s going to happen with energy going up to these levels. Is that a net gold inflationary positive or net economy drag? I think people are coming out on the latter side of that.”
In other corporate news, Citigroup said today that it plans to liquidate roughly $500 billion in assets and grow revenue by 9% over the course of the next few years, as the financial behemoth claws its way back from its major credit losses.
Activist investor Carl Icahn, said today that he is prepared to purchase Circuit City (NYSE:CC) if Blockbuster (NYSE:BB) cannot obtain financing or shareholder approval.
In economic news, the Commerce Department reported this morning that the U.S. trade deficit narrowed to $58.2 billion, a more-than-anticipated 5.6% from February, as demand for petroleum imports declined on account of high oil prices. The narrowed trade deficit also reflects the weakening domestic economy and a beleaguered dollar.
“The trade deficit number shows why the weak dollar has been important for the United States,” said Busch. ”[What’s] interesting is [that] close to half of the trade deficit is oil. If oil continues to go higher it’s going to be a drag on trade for the second quarter because it’s gone up so much. But looking back at the first quarter — all things equal — that says we’ll see a net increase in GDP from the trade gap.”
In small-cap headlines, 3D Systems Corp. (Nasdaq:TDSC) tumbled 38% midday, gapping lower as earnings failed to impress investors. Deltek Inc. (Nasdaq:PROJ) tumbled nearly 34%, also tied to earnings news. PowerSecure International (Nasdaq:POWR) also gapped down, sinking about 14% in the wake of sloppy earnings. On the upside, Pegasystems Inc. (Nasdaq:PEGA), gained 17% midday after the business process management company reported strong first-quarter earnings. Aceto Corp. (Nasdaq:ACET) was also up midday, jumping 13% on fiscal third-quarter earnings that trumped the consensus on Wall Street and sales that increased 29.5% from the year-ago quarter.
