Stocks sink as crude soars, financials limp
Small-cap stocks took a dive on the opening, pulled under water by yet another selling flurry in the financial sector, a recovery bounce in crude oil, declines overnight on international equities and safe-haven flow out of stocks into bonds. At 10:10 a.m. ET, the Russell 2000 (NYSE:IWM) was down 12.96, or 1.76%, at 724.87.
This morning’s whipping post for the financials was Merrill Lynch (NYSE:MER) and shares in the investment banking firm were down 5.2% shortly after the opening. The market seems to be rotating around various financial stocks, but the whole group is also being punished as investors shy away from the group amid the ongoing credit crunch. Rival investment banks Goldman Sachs (NYSE:GS) and JP Morgan (NYSE:JPM) were both in the red early today as well. Ironically, even as Merrill is a target for the bears this morning, their own analysts issued bearish news on several banks, forecasting dividend cuts and lowering price targets. Wachovia (NYSE:WB) was off 5% and Bank of America (NYSE:BAC) was down 4%.
During Thursday’s session, crude oil futures offered an olive branch to stock market bulls via the largest one-day slide in about three months, but the market for black gold rallied back some overnight, climbing above $136 dollars a barrel heading toward the U.S. stock market opening. There was some talk once again about Israel planning a strike against Iran’s nuclear facilities; those rumors were in the news back on June 6 when crude oil jumped.
The stiff bounce in crude oil was accompanied by a sinking U.S. dollar, which lost 0.7% against the euro and about 0.5% versus the yen. The sinking dollar also could support a wide range of other commodity markets heading into the weekend.
Stock markets around the world were on the defensive overnight, with Japan down 1.3%, Taiwan off 1.8%, Australia down 1.4%, India down 3.4%, Hong Kong down 0.2%, South Korea down 0.6%. China shares did bounce 2.7%, but that was just one down after sinking more than 7%.
Traders are still watching to see if the quarterly “quadruple witching” expirations will spark volatility into the mix today, but with stocks retreating from the concentrated overhead strikes, it could dull any excitement tied to the witching. From a market structure standpoint, it was interesting to see that the NYSE said short interest was at an all-time high. Clearly, visible hedge fund shorting in financial stocks — such as Lehman Bros. (NYSE:LEH) — has fueled interest in short selling of equities. In futures, commercial accounts appear to be building a long position, which is interesting. The latest futures position details will come out later this afternoon in the Commitments of Traders report.
Broad market sectors attracting sellers today were highlighted by the financial arena, with regional banks falling out of favor once again. Diverse financial stocks, banks, thrifts, mortgage firms, investment banks and brokerages were all taking an early beating, as were IT consultants.
As for the bullish sectors today, anything oil was golden. Big gains were seen in oil exploration, oil production, oil drilling and oil storage, among others. Gold and education services were also on the upside.
Small-cap stocks on the move this morning were highlighted by Medis Technologies Ltd. (Nasdaq:MDTL), which gapped lower and shed some 20% on news that the firm was selling about $29 million in securities. MF Global (NYSE:MF) was down some 15%, and continues to reel in the wake of a 40% rout earlier this week amid sinking interest rate trading revenue. The company issued a statement that it viewed the shortfall as temporary, but investors weren’t buying. Stoneridge (NYSE:SRI) was off 12%, but this stock has been rallying steadily in recent months, climbing to $18 earlier this week from $7 dollars in mid-January.
Bucking the overall market downdraft, the biggest gainers early today were Trubion Pharmaceuticals (Nasdaq:TRBN), jumping 15% on news that a research extension has been granted by Wyeth Pharmaceuticals (NYSE:WYE). Also, The Steak N Shake (NYSE:SNS) was up almost 5% as the company announced a new board chairman.
