Russell extends Thursday's slide after dreary jobs report

Kevin Pendley | Sep 05, 2008 10:18am EDT | Comment

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Small-cap stocks slumped this morning, extending the rout from Thursday’s session as investors woke up to the harsh news that America’s unemployment rate was approaching five-year highs. At 9:50 a.m. ET, the Russell 2000 (NYSE:IWM) was down 4, or 0.56%, at 714.62.

On Thursday, small caps collapsed, generating the largest one-day loss since early January, but the market still had bearish bullets in the holster after today’s dreadful employment report from the Labor Department. The jobs data showed that the nation’s unemployment jumped to 6.1% from 5.7% (the market was expecting the rate to hold steady), which was the highest point since December 2003. In addition, the headline figure on non-farm payrolls came in at a loss of 84,000 jobs, which was worse than the consensus estimate for a decline of 71,000 jobs. This marked the eighth consecutive monthly decline in payrolls, which hasn’t happened since the 2001 to 2002 time frame when the economy was emerging from recession.

“So far this year, 605,000 jobs have been lost. The economy has clearly slipped into a jobs recession because the housing meltdown and credit market turmoil has spread to the broader economy,” Steven Wood, chief economist with Insight Economics, said in an email. “Over the past year, the number of unemployed people has increased by more than 2.24 million and the unemployment rate has increased by 1.4 percentage point. In the post World War II period, every time the unemployment rate has jumped by a full percentage point or more in the course of a year, the economy has been in a recession.”

Crude oil futures were down about $1 dollar a barrel before the jobs report, but climbed back toward steady prices as the dollar retreated off overnight highs against the euro, and tumbled versus the yen. In overnight trading, copper prices hit a seven-month low in Europe, but since copper is considered a key economic indicator, it’s actually one of those commodity markets that investors aren’t that crazy about seeing headed lower.

An ongoing part of the investment flow story of late is the push for “safe-haven” assets as investors spooked by the stock market move into Treasury products and other credit instruments. The yield on Treasury products moves inversely to the price, and yields on the benchmark 10-year note tumbled to fresh move lows this morning, which reflects the demand for credit market investments.

Nokia Corporation (NYSE:NOK), the world’s largest cell-phone maker, slashed its outlook, which will only add to the woes for tech stocks today. NOK shares were off 10% early, while other tech shares were also worse for the wear — but perhaps not as bad as feared. The tech-laden Nasdaq 100 Index was down 0.4%.

Other large caps in the glare this morning include Merrill Lynch & Co. (NYSE:MER), which was downgraded overnight by rival investment bank Goldman Sachs. MER stock was off 3.5% shortly after the open, and the Financial Select Sector SPDR Fund was down 1.2%.

On the upside, shares of UST Inc. (NYSE:UST) soared overnight following reports by the New York Times that the firm was a takeover target by Altria Group Inc. (NYSE:MO). UST shares managed to climb this morning even in the face of the bearish economic data, with the stock up 24%.

Broad market sectors on the decline this morning were highlighted by homebuilders, home furnishing retail, custody banks, food retail stocks and department stores. On the upside, gold, tobacco, casinos and various energy sectors were doing well.

Individual small caps of note were highlighted by Astec Industries Inc. (Nasdaq:ASTE), which tumbled 8%, gapping lower to test the recent move lows. Repros Therapeutics Inc. (Nasdaq:RPRX) also gapped to the downside, sinking some 6% to fresh move lows.

From a charting standpoint, the Russell slipped through the first key chart test this morning at 716.60, which corresponded to the recent low off the August top and which help up Thursday. The next point to watch is down near 711.50, which marked a bullish reversal on hourly charts in early August, then the 701 zone. On the upside, if the market can push back through 716.60 today, then 720.50 and 726 are the resistance points to keep in mind.