Nervous dip awaiting rescue plan fate

Small-cap stocks took a tumble Wednesday, pulled down late in the session by concerns over the political wrangling tied to the financial rescue plan, which offset optimism spurred by news that Warren Buffett was investing $5 billion into Goldman Sachs Group Inc. (NYSE:GS). The Russell 2000 (NYSE:IWM) closed down 11.41, or 1.61%, at 697.78. For the year, small caps are off 8.9%, while the Dow is down 18.3% and the S&P 500 is down 19.2%.

The White House appears willing to acquiesce to Congressional calls for curbs on executive pay, but there are still other details to work out, including what many consider a glaring lack of oversight considering the amount of money on the table. The market appears willing to wait anxiously for the bill to pass, but each day that lingers could spike angst among financial market watchers.

Buffett’s decision to charge back into investment banking generated a wave of good tidings this morning. If the “Oracle of Omaha” thinks that bank stocks might be near a bottom, then other investors could also be brought back to the fold. For the day, Goldman Sachs shares were up about 3%, but the rising tide at GS didn’t necessarily lift all financial stocks.

The market remains concerned that the mountain of bad debt spurred by the housing crisis is choking off credit lines, reflected by price activity in the Libor market, which suggests strained lending patterns right now between bankers. Hey, if banks can’t get a good loan, then who can? Fresh economic data on the housing front was nothing to get excited about either. The existing home sales report came in down 2.2% at a rate of 4.91 million units, which was off the projected pace of 4.94 million. Earlier, before the opening, the MBA Mortgage Applications Survey slipped 10.6% to . . .

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