Russell 2000 disappoints again

The Russell 2000 (NYSE: IWM) swung up and down today but eventually failed to join the other major U.S. indices in the green. The small-cap index lost 1 point, or 0.13%, to 749.33, its fifth consecutive decline. The Dow Jones Industrial Average (INDU) added 51.70 points, or 0.40%, to 13,010.14.

On a year-to-date basis, the Russell 2000 has shed 4.84%, while the Dow has advanced 4.29% and the S&P 500 has gained 1.63%.

A volatile day of trading began on a bullish note following news before the opening that U.S. housing starts unexpectedly increased 3% in October, according to the U.S. Census Bureau. Economists were forecasting a small drop after September’s steep 11.4% decline.

Privately-owned housing starts were at a seasonally adjusted annual rate of 1.229 million in October, compared with September’s slightly upwardly revised level of 1.193 million.

Stocks opened in positive territory, with investors apparently disregarding the part of the government’s report that showed a decrease in buildings permits.

Buildings permits, a sign of future construction, fell 6.6% to an annual rate of 1.178 million.  That’s the lowest level since 1993 and a sign that the housing sector will most likely continue to stagnate. Building permits in September were 1.261 million at an annual pace.

The bulls remained dominant until shortly after 12 p.m. ET, when the rally abruptly ran out of steam and went into reverse. The small-cap index was the first to take a hit, followed shortly later by the other major U.S. indices.

It’s difficult to say with certainty what the catalyst was, but financial stocks declined as investors once again turned their attention to the credit problems stemming from the meltdown in the subprime mortgage sector.

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