Small-cap stocks roared out of the gate in morning trading, but a widespread sell-off began around 10 a.m. ET and erased gains. A rallying attempt shortly before noon was met with resistance and small caps have continued to decline in Friday afternoon trading. At 1:34 p.m. ET, the Russell 2000 (NYSE:IWM) slipped 4.01, or 0.55%, at 725.74.

At 10:08 a.m. ET, the small-cap index peaked at 735.78, its highest point since early January. Bullish investors were encouraged by a better-than-expected monthly employment report, which showed a decline of 20,000 payroll jobs in April — much better than the median forecast for a loss of 80,000 jobs. In addition, the headline unemployment figure came in at 5%, which was down from 5.1% last month and well above the number cruncher’s pre-release figure of 5.2%.

Just ahead of the employment release, the Federal Reserve added liquidity into the system, which sparked a brief flurry of conspiracy theorists that perhaps the credit crunch was rearing its head again, or that the employment report would be a bearish surprise. Clearly, the latter wasn’t the case, and it’s most likely that the . . .

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