Corrective pullback as financials slump, crude bounces

Small-cap stocks edged lower shortly after the opening, pulled down by weakness in the financial arena, a bounce in crude oil prices and long profit-taking following two sessions of huge gains. At 10:00 a.m. ET, the Russell 2000 (NYSE:IWM) was down 4.22, or 0.56%, at 746.84. The Dow was off 0.58%, while the S&P 500 was down 0.51%.

Financial stocks were back in the spotlight this morning, pulled down by a batch of fresh bearish news overnight and a spate of analyst downgrades in various big names. Morgan Stanley (NYSE:MS) and Wachovia Corp. (NYSE:WB) were pressured by the auction-rate security fiasco, as WB settled a probe on the issue and lowered Q2 numbers, while MS offered to reimburse investors. It’s a painful hit to the bottom line that the number one bank Citigroup Inc. (NYSE:C) already has faced. In addition, Oppenheimer analysts lowered the outlook for Goldman Sachs Group Inc. (NYSE:GS). Shortly after the open, MS was down 3.0%, WB off 4.5%, C down 1.2% and GS down 3.3%. The Financial Select SPDR was down 1.9%.

The market also frowned upon a sudden recovery bounce in crude oil prices, which saw the market on black gold move from three-month lows near $113 overnight back toward the $115 zone into the stock market opening. The rise in crude was tied to news that some production and transport in the Georgia region was going to be offline, even though Russian officials have ordered an end to the military conflict.

Elsewhere on the commodity inflation front, corn futures were called lower following USDA’s August production report, which forecast a larger crop than expected. However, softs markets were climbing this morning and the iPath GSCI Total Return commodities index was up about 0.3% in early trading. After huge declines in recent days, a consolidation move or bounce in commodities certainly wouldn’t . . .

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