Downbeat economic data, mixed earnings bag pressure small caps

Breaking a green streak this week, small caps are crumbling mid-session after weaker-than-expected existing home sales, higher weekly unemployment claims and a mixed batch of earnings zapped the market’s optimistic sentiment.

At 12:20 p.m. ET, the Russell 2000 (NYSE:IWM) was down 7.46, or 1.04%, at 711.73, while the Dow was down 133.2, or 1.15%, to 11,499.18.

The market got a dose of reality this morning when existing home sales for June reportedly fell 2.6% to an annual rate of 4.86 million units, below the forecast of 4.93 million. It marked the lowest level in 10 years and was down 15% from last year. In addition, the inventory of homes available for sale rose to 11.1 months, up from 10.8 months in the May report. The national median home price also tumbled 6.1% from last year.

Adding insult to injury, data on weekly claims came in much higher than expected, painting a somber picture on the employment front. The headline figure for weekly claims was at 406,000, far above the forecast of 380,000. Continuous claims dipped slightly, but the 4-week moving average rose. There was, however, some thought that the weekly claims report was at risk for an upside surprise amid layoffs in autos, airlines and banks.

In another negative chapter to the credit crisis saga, two units of UBS are being sued by New York Attorney General Andrew Cuomo, for allegedly misconstruing the risks associated with auction-rate securities to clients by painting such securities as safe and liquid investments.

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