Huge opening rout as manufacturing shudders worldwide

Kevin Pendley | Dec 01, 2008 10:20am EST | Comment

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Small-cap stocks started out the new month with a bearish bang, sinking hard amid gloomy manufacturing data around the world, which weighed on industrial and commodity stocks. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was down 23.79, or 5.03%, at 449.35.

The dour tone on manufacturing started in Asia, where new orders for China’s manufacturing sector fell hard, stirring worries about the global recession. Then, the worries followed through to Europe and finally here to the United States, as the ISM Manufacturing Survey came in at 36.2, which was below the forecast of 38.0. In addition, the construction spending report was pegged at minus 1.2%, also below the projection for a dip of 0.9%.

Energy stocks were also an early drag on the market, taking a cue from sinking crude oil prices. The market for “black gold” was off nearly $4 a barrel this morning, pummeled by news that OPEC said they would wait to make a decision on further supply cuts and also by the troubling economic news around the globe.

The dollar was up about 0.5% against the euro, which also weighed on commodity prices this morning. Copper and aluminum prices were lower in Asian trading as those markets react to the China manufacturing news. Within the commodity realm, Brazilian stocks were off some 3% early today, as that country is heavily dependent on commodity exports.

Investors will be looking for news about how the holiday shopping season is moving along. The early returns seem positive for the “Black Friday” kickoff of the season after last Thursday’s Thanksgiving Day holiday, but the way the market is trading today suggests there might be some hidden weakness in those returns. Today is known as “Cyber Monday” as consumers scan the Internet for holiday bargains, and any feel for those returns could also be important as the day progresses.

From a money flow perspective, investors appeared to be fleeing stocks for safe-haven outlets in the credit markets. European bund futures hit contract highs shortly after the U.S. stock market open, and the yield on U.S. Treasury products tumbled more than 4% for 10-year notes and bonds.

Individual small caps on the move this morning included Teekay Tankers Ltd. (NYSE:TNK) which was down 12%, correcting lower after a huge rally day Friday. Union Drilling Inc. (Nasdaq:UDRL) was off 22% as the natural gas driller tumbled with other energy names. Along that dour commodities theme, Patriot Coal Corp. (NYSE:PCX) was off 14%. UAL Corp. (Nasdaq:UAUA) was down 6% after the airline filed a mixed shelf to offer securities. The amount of the shelf was not disclosed. On the upside, Mentor Corp. (NYSE:MNT) jumped 90% on news that the breast implant distributor would be purchased by Johnson & Johnson (NYSE:JNJ) for $31 a share.

The chart picture for small caps took a lump this morning, as the big opening swoon took back a big chunk of last week’s historic advance. The Russell plunged through the first support of note at 461, but was still above the next point we’re watching at 452.50. Below there, support is at 442. If the market can mount a recovery charge, then resistance will be near Friday’s closing levels around 473.