Small caps extend Monday's slide

Small-cap stocks tumbled on the open, pulled down by spillover selling from a decline in overseas markets fueled by a weak tone in financial and commodity shares. At 10:00 a.m. ET, the Russell 2000 (NYSE:IWM) was down 11.42, or 2.32%, at 481.69.

Slumping energy and commodity values already took a toll on overseas equities heading toward this morning’s opening. Shares in emerging market countries that are heavily dependent on energy exports — such as Russia and Dubai — were down as much as 9% overnight. Around the world, stock were off 3% in Japan, Hong Kong was down 4.7%, China off 1.1%, Taiwan down 2.1%, Australia off 3.5%, Singapore down 4.1%, South Korea off 2.1% and India down a whopping 6.6%.

As for the crude oil, the market for black gold was down about $2 a barrel into the U.S. stock market opening and briefly printed below $60. Copper, which is considered a key economic indicator, slipped 3% in London and aluminum producer and Dow component Alcoa Inc. (NYSE:AA) said that they were slashing output in this difficult demand environment.

This morning’s soft tone on commodities certainly is a quick turnabout from Monday morning, when commodity markets were in rally mode in Asia and Europe. If you’re wondering why Monday’s “great news” rally out of Asia on China’s announcement to implement a $586 billion stimulus plan, Northern Trust’s James Pressler penned a great piece on the news, questioning how much of the plan was actually “new” stimulus and just how the money to pay for the plan would be raised.

“Given the vagaries of how much real spending was in yesterday’s announcement, we are hesitant to significantly modify China’s growth forecasts upward or downplay the many risks facing the country’s struggling export economy and encumbered financial system,” Pressler said in an email. “However, we do feel that the uncertainties regarding how China will pay this bill will haunt global markets. If Beijing simply issues 4 trillion (yuan) in debt to cover its tab, then the long-term impact would be a manageable domestic issue. However, if it considers liquidating any of its many U.S.-backed assets or no longer buying as much of our debt, this New Deal . . .

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