Credit fears sink Russell 2000

Alex Alexandrov | Nov 26, 2007 5:03pm EST | Comment

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The Russell 2000 (NYSE: IWM) and the Dow fell today on news of rising mortgage defaults and credit market losses. The small-cap index dropped 19.96 points, or 2.64%, to 735.07. The Dow Jones Industrial Average (INDU) let go 237.44 points, or 1.83%, to 12,743.44.

On a year-to-date basis, the Russell 2000 has shed 6.65%, while the Dow has added 2.16% and the S&P 500 is down 0.66%.

Stocks posted big losses today following news that HSBC Holdings PLC (NYSE: HBC) could face billions in losses and Citigroup Inc. (NYSE: C) is planning job cuts in a move to return to profitability.

London-based HSBC may have to absorb losses of up to $12 billion due to bets placed on securities backed by subprime mortgages, according to an analyst from Goldman Sachs Group, Inc. (NYSE: GS). HSBC, which is Europe’s largest bank, may also need to rescue two of its funds by putting $45 billion of their assets onto its balance sheet.

More bad news came from Citigroup, which announced that it is looking for ways to improve efficiency and cut costs in order to return to profitability after mortgage writedowns led it to report a loss in its most recent quarter

Although Citigroup, the largest U.S. bank, did not say how many of its over 300,000 employees will be getting pink slips, a news report from business news channel CNBC put the figure at between 17,000 and 45,000.

The fact that two of the world’s largest banks are in the crosshairs of the fallout from the subprime mortgage meltdown scared investors and put stocks on the downward trajectory.

The Russell 2000 opened in positive territory but reversed course within an hour after the start of trading, while the Dow stayed on both sides of the flat line until about 1 p.m. ET, when the bears established their dominance.

The early session’s modest gains were due to reports of a successful Black Friday for retailers.

Preliminary numbers show that sales rose 8.3% to $10.3 billion, according to ShopperTrak, a provider of shopper traffic counting information software. The National Retail Federation announced that 147 million shoppers hit the stores over the Black Friday weekend, an increase of 4.8% from a year earlier.

But spending per customer fell 3.5% to $347.44, which indicates that high energy prices and stagnating house prices took their toll on individual spending. Retailers offset that by offering discounts to attract more buyers. See here for more information.

For the remainder of the week, investors will be focused on data about the U.S. economy, as numbers on consumer confidence, existing home sales, third-quarter gross domestic product and durable goods will be released in the coming days.

Economists broadly expect to see signs of a slowdown in U.S. economic growth.

Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:

Biggest percentage gainers:

• Hoku Scientific Inc. (HOKU), up 39% to$8.22 on news it has signed a $306 million contract to supply polysilicon to Solarfun Power Holdings Co. Ltd. (SOLF).
• James River Coal Co. (JRCC), up 27% to $6.82 on news of an agreement for new coal shipments.
• U.S. Shipping Partners L.P. (USS), up 12% to $10.75 on news that it expects to pay the $0.45 fourth-quarter distribution on its common units in full.

Biggest percentage losers:

• TechTarget Inc. (TTGT) down 19% to $11.69. A company representative could not be reached for comment.
• Santander BanCorp (SBP), down 19% to $9.36. The company could not be reached for comment.
• Medivation Inc. (MDVN), down 17% to $14.53. A company representative could not be reached for comment.

Volume leaders:

• Hoku Scientific Inc. (HOKU) 8,493,800 shares traded.
• Palm Inc. (PALM) 8,378,500 shares traded.
• BIDZ.com, Inc. (BIDZ) 6,080,100 shares traded.

The day saw 161 small-cap stocks set 52-week lows, while nine small caps established 52-week highs.