New lows for Russell, but not as bad as feared

In one of the more jarring and widely anticipated stock market openings in history, small-cap stocks plummeted to fresh bear market lows while hitting the lowest point since August 2003. The freefall was precipitated by a collapse in overseas markets amid profit warnings in Asia, ongoing worries about a worldwide economic slowdown and talk of forced liquidation. At 10:04 a.m. ET, the Russell 2000 (NYSE:IWM) was down 16.80, or 3.43%, at 473.12. An upside surprise in existing home sales helped stocks pare early losses.

Fear and dread ahead of today’s opening was heightened by limit-down losses and the activation of trading halt circuit breakers overnight in stock index futures. While a 5% opening slide ranks among the worst in history, there was actually some sense of relief among investors that the initial plunge wasn’t even worse than what we saw.

Existing home sales came in at 5.18 million units, well above the forecast of 4.98 million. The September rise of 5.5% marked the highest percentage rise since July 2003 and the rate was the best since August 2007. After a bleak report on foreclosures Thursday, the existing home sales report was a nice surprise for the market, but probably won’t be enough to say to investors that the housing market bottom is in place.

“World wide markets appear to be in a free-fall this morning. Circuit breakers on the S&P 500 Index (SPX) futures have already been implemented on a pre-opening basis. We would not be surprised to see VIX above the 90 level and even above 100 level, setting new all-time highs as risk perceptions rise to levels not witnessed,” Scott Fullman, director of derivative investment strategy with WJB Capital Group, said in an email.

“The cost of hedging has been rising and is now costing nearly as much as it would be to take losses. This will likely impact liquidity for the derivative markets, which may result in further impacts on implied volatility levels. This may be a sign . . .

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