Small caps turn negative as econ worries, REITS offset China news

Small-cap stocks turned lower into midday trading, pulled down by worries about the economy, sinking REITS, soft financial stocks and concern that a big stimulus plan announced by China overnight might not be enough to jolt worldwide economic conditions out of the doldrums. At 12:16 p.m. ET, the Russell 2000 (NYSE:IWM) was down 4.05, or 0.80% at 501.75. The Russell was the first major index product to slip into the red, beating the Dow and S&P 500 into negative territory by about an hour.

There are always concerns about how the numbers actually shape up when dealing with details out of China. Skeptics looked at the plan calling for $586 billion worth of stimulus and wondered if most of that money was already planned anyhow, or just how much would actually be put to work. Still, the overall sense was that the China news positive, but that there were still plenty of landmines to avoid in coming months.

Commodity shares were the top performers through the morning, bolstered by the China news, by oversold conditions and by a mild dip in the U.S. dollar versus the euro. Coal, agriculture products, aluminum, gold, metals and mining stocks and oil and gas drillers were among the top broad market sectors today. Meanwhile, anything REITS was getting hammered, as were automakers. Wireless telecoms and investment bank stocks were also attracting heavy selling.

Crude oil prices actually slipped into the red by midday, giving back $4 a barrel worth of gains from overnight. Energy traders continue to be ultra sensitive to declines in equities, fearing a troubled economy will squash demand.

It was interesting to see that the Commodity Research Bureau Index of 19 physical markets was only up 1.4% at midday, not all that dramatic of a move given the overnight rally in crude oil, gold and copper from the China news. Gold seemed to be best commodity performer, perhaps tied to inflation positioning down the road, but commodities in general were backing off the morning highs as the day . . .

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