Small caps slip on Freddie Mac loss

Will Atkinson | Aug 06, 2008 12:31pm EDT | Comment

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Small-cap stocks edged down in midday trading, pressured by Freddie Mac’s larger-than-expected second-quarter loss and by profit-taking from traders who caught Tuesday’s big rally.

At 12:36 a.m. ET, the Russell 2000 (NYSE:IWM) was down 0.90, or 0.12% at 720.14.

Freddie Mac (NYSE:FRE) has dropped 11% in midday trading on sloppy quarterly earnings and news that the firm will reduce its dividend. The mortgage lender reported a $821 million quarterly loss, setting a gloomy mood for investors. Fannie Mae (NYSE:FNM), another government-chartered lender that often closely tracks Freddie's price moves, was also lower in the midday, off some 7%.

“Reuters reports today that the U.S. Treasury has hired Morgan Stanley in an advisory role to help it analyze and better understand its new authorities to backstop housing finance giants Fannie Mae and Freddie Mac,” Andy Busch, global foreign exchange strategist for BMO Capital Markets said in an email. “Today, Morgan Stanley told thousands of clients this week that they won't be allowed to withdraw money on their home-equity credit lines, said a person familiar with the situation according to Bloomberg. Hmm, the grassy-knoll-conspiracy-theorist inside me thinks that the two are related.”

Crude oil futures had slipped $1.59 to $117.58 a barrel in recent trading. Inventory data this morning showed a larger-than-expected rise in U.S. oil stockpiles. In other commodity news, the U.S. dollar continued its rally in midday trading and is up against both the yen and the euro in recent trading.

Tech stocks were underpinned relative to other index products by surprisingly stout earnings from Cisco Systems Inc. (Nasdaq:CSCO), which was up 6% in the midday. Within the tech arena, Microsoft Corp. (Nasdaq:MSFT) was the beneficiary of positive analyst comments overnight and was up 2.25%.

However, the positive news on big-cap techs was countered by big losses from a broad spectrum of companies. For example, Whole Foods Market Inc. (Nasdaq:WFMI), missed earnings projections and tumbled 15% during the mid-session. Also, Priceline.com (Nasdaq:PCLN) was down 16% as the company had a cautious forward-looking statement.

Broad market sectors on the decline in the midday were highlighted by printing services, specialty retailers, advertising services, discount retailers, transportation, printing and publishing and technology retailers. On the upside, coal, computer networks, gold and silver, metal mining, oil and gas operations, fish and livestock, water transportation and construction services companies were attracting buyers.

Individual small-caps of note included Advisory Board Co. (Nasdaq:ABCO), which gapped lower and tumbled some 27% midday on sloppy earnings results. Multi-Fineline Electronix Inc. (Nasdaq:MFLX) was off nearly 34%, also tied to disappointing quarterly numbers. National Financial Partners Corp. (NYSE:NFP) shed 20% after the firm missed the earnings projection.

On the upside, Greenfield Online Inc. (Nasdaq:SRVY) was up 20% on news that the firm received an offer from a suitor for $17.50 a share. Albany Molecular Research, Inc. (Nasdaq:AMRI) is up 21% after the company, a provider of scientific services, technologies and products, reported a second-quarter profit above Wall Street’s expectations. Amerigon Inc. (Nasdaq:ARGN) is up 16% in midday trading after the Northville, Mich.-based company reported a second-quarter profit of $1.3 million, or $0.06 per share, which met Wall Street’s expectation. Online jewelry retailer Bidz.com, Inc. (Nasdaq:BIDZ) is rising 15% after reporting robust second-quarter results late Tuesday that trumped the consensus on Wall Street.