Russell 2000 falls even more

The Russell 2000 (NYSE: IWM) has sunk even deeper into negative territory following news of record low U.S. homebuilder confidence. At 2:26 p.m. ET, the small-cap index had retreated 16.86 points, or 2.19%, to 752.64. The Dow Jones Industrial Average (INDU) had fallen 154.70 points, or 1.17%, to 13,022.09.

Trading began on a bearish note following news that investment bank Goldman Sachs Group, Inc. (NYSE: GS) downgraded financial services giant Citigroup Inc. (NYSE: C) to “sell” from “neutral” on fears that it could suffer up to $15 billion in write-downs on collateralized debt obligations over the next two quarters.

The fact that the largest U.S. bank has been dealt a blow and added to the list of casualties scared investors and served as a reminder that the subprime mess is still working its way through the system and has the potential to inflict more pain.

The financial sector has been feeling the sting of the meltdown in the subprime mortgage sector, which began after the U.S. housing prices started to stagnate in the second quarter of 2006.

Speaking of housing, the National Association of Home Builders reported after the start of trading that its index of builder confidence stayed at a record low level for the second month in row in November.

Builder confidence in the market for new single-family homes held at October’s upwardly revised level of 19, the trade association announced. That’s the lowest reading since tracking started in January 1985.

“The message from today’s report is that builders do not see any significant change in housing market conditions as compared to last month,” said NAHB chief economist David Seiders in a statement. “While they continue to work down inventories of unsold homes and reposition themselves for the market’s eventual recovery, they realize it will be some time before market conditions support an upswing in building activity.”

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