Financial, retail, commodity stocks pace small-cap swoon

Kevin Pendley | Dec 01, 2008 12:34pm EST | Comment

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Small-cap stocks extended the morning free fall, with financial, retail and commodity sectors all taking a beating as investors recoiled from a batch of brutal manufacturing data from around the world and fretted about the true eventual returns from this holiday spending season. At 12:27 p.m. ET, the Russell 2000 (NYSE:IWM) was down 30.90, or 6.53%, at 442.24.

New manufacturing orders plunged in China, which is the world’s fourth-largest economy and a key source of labor for goods then exported to trading partners throughout the planet. That somber tone on manufacturing was only deepened when the ISM Manufacturing Survey for the United States came out this morning at 36.2, which missed the 38.0 forecast and was the worst reading in 26 years. Just to emphasize the point of how bad things are, the employment sub-index on the ISM report was the worst in 17 years, the new orders sub-index was the worst in 28 years and the priced paid sub-index was the worst in 59 years.

Financial stocks and energy shares were among the hardest hit stock market components through mid-session trading, with the Financial Select Sector SPDR Fund and the Energy SPDR both off about 7%. Looking at individual broad market sectors, there are none above 1% gains right now, and 10 sectors with losses greater than 10%. The biggest declines were seen for industrial REITS, oil equipment, investment banks, coal, specialized finance, oil and gas drillers and consumer finance.

Crude oil prices were down some 8% so far today, with U.S. crude benchmark values slipping through the $50 support line. The dollar was firm against the euro, which further played into the collapse in commodity markets; the Commodity Research Bureau Index of 19 physical markets was down 3.2% at midday.

Retail stocks were also taking a hit today, with the S&P Retail Index down about 5.7% despite early press reports that the Black Friday kickoff of the holiday shopping season saw a rise in sales and traffic. The fact that the market was sinking fast today makes some of those upbeat reports on Black Friday business seem quite suspect, but perhaps investors are simply ramping down expectations for the entire season. Today is known as “Cyber Monday” when consumers supposedly dash to online shopping sites to scoop up bargains in time for the postman to deliver before Christmas, so details on how today’s online shopping is moving along could have an impact on afternoon stock market action.

Speaking of shopping, Liz Claiborne Inc. (NYSE:LIZ) tumbled some 25% as the owner of Juicy Couture, Lucky Brand Jeans, Kate Spade and DKNY Jeans will be dropped from the S&P 500. Last week LIZ saw Moody’s cut its bond rating to junk status. In mid-September, LIZ was trading above $20 a share; today it is hovering just above $2. China Valves Technology Inc. (OBB:CVVT) collapsed 79% on the China manufacturing woes, but it should be noted that this stock rarely trades much anyhow and was down on less than 1,000 shares trading today. Excel Maritime Carriers Ltd. (NYSE:EXM) was off 27% as the owner and operator of dry bulk carriers hit fresh 52-week lows. Gulf Island Fabrication Inc. (Nasdaq:GIFI) tumbled 23% as the offshore drilling platform specialist was caught in the undertow of the slide in energy values.

The Russell is now testing logical support along the 442 zone. If that support is cracked, then the next point to watch on the downside is at 435. Any recovery move this afternoon should find resistance at 454, then at 461 and 473.