Russell collapses as financials, commodities go into tailspin

Small-cap stocks fell hard Tuesday, completely wiping out Monday’s GSE-takeover advance as investors fretted about the overall state of financial companies. In addition, money also flowed out of homebuilding stocks and commodity names as traders searched for a safe-haven in credit markets. In the end, the Russell 2000 (NYSE:IWM) shed 25.57, or 3.49%, to 707.29, notching the largest one-day decline of the year by the time the dust settled. The small-cap benchmark is now down 7.6% for the year.

Although losses in the Dow today were less extreme than in the Russell 2000, sellers still were in control, with the Dow off 2.43% for the day, and down 15.3% on the year. Over in the S&P 500, the market tumbled 3.41% today and is off 16.6% for 2008.

“The GSE takeover was basically a band-aid on a gaping wound,” James Comiskey, senior market strategist with Lind-Waldock, said in a phone interview. When the Lehman meltdown took place this morning, it showed that there are systemic risks in the financial system that go beyond just bailing out mortgage underwriters. And it also brings up the question of just how many times the government can try to rescue these firms that are bleeding money from terrible business decisions, Comiskey said.

The “Lehman meltdown” Comiskey referred to was Lehman Brothers Holdings Inc. (NYSE:LEH), which collapsed 44% today amid fears that the firm was hitting a wall in raising capital to shore up losses tied to the mortgage/credit crisis. As LEH shares plummeted, Standard & Poors rating agency said it may slice Lehman’s credit rating. The rout in LEH shares simply stoked selling throughout the financial arena, with the Financial Select Sector SPDR Fund sinking 6.3%. “When the banks are throwing knives in each other’s backs, things are bloody. It makes the GSE takeover . . .

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below