Small caps slump as weak economy back in spotlight

Small-cap stocks pushed lower on the open as sloppy profit numbers and weak economic data returned to center stage now that the U.S. presidential election has been decided following last night’s historic runaway victory by Barack Obama. At 10:05 a.m. ET, the Russell 2000 (NYSE:IWM) was down 7.05, or 1.29%, at 538.90.

The ISM Non-Manufacturing Survey came in at 44.4, which was well below the forecast of 48.0 and was at the lowest point in the 10-year history of the survey. Interestingly, stocks actually trimmed losses after the glum report, but remained in negative territory.

Earlier this morning, the ADP Employment Survey was reported at minus 157,000, well below the forecast for a 100,000 loss. Even though the ADP report has not been tracking very well with the Labor Department survey, today’s ADP data cast a pall on the market heading toward Friday’s big monthly employment report. In addition, the MBA Mortgage Applications Index tumbled 20.3% last week to the lowest point since December 2000 in response to a jump in fixed mortgage rates, and purchase activity slipped by 13.9% and is also at the lowest level since December 2000.

There was another big pullback in Libor rates overnight, which should help encourage inter-bank lending and help thaw out the credit market freeze. Supply remains an issue in credit markets and today the Treasury said it will resurrect the 3-year note and conduct more frequent auctions of 10-year notes and 30-year bonds to fund the government’s staggering borrowing needs.

The market was now buzzing over what impact President-elect Obama will have on difficult pressing issues about the economy, jobs erosion, the housing meltdown, the financial crisis and the wars in Iraq and Afghanistan. While it appears a daunting task, Obama will enter the job with a mandate for change from the people and a big majority in the House and Senate to further his plans. From a historical perspective, it’s interesting to note that the stock market has lost about 1% in the first month after electing a new Democrat changeover to the White House, but then the market has rallied 10% over a 12-month period after the election. From a strict company perspective, there is a broad sense that an Obama presidency would be positive for solar and wind companies and potentially negative for defense contractors and big oil companies.

Strategists with BMO Financial Group said in a press release that Obama’s . . .

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