Lowest close since June 2003 for Russell; NAHB survey adds to economy woes

Small-cap stocks went into yet another tailspin Tuesday, sinking to fresh bear market lows, unable to sustain morning enthusiasm tied to a positive outlook from a major PC-maker, instead focusing on the global recession, slumping homebuilder confidence and money flow into credit instruments. However, the market staged a brilliant late-session comeback bounce, repeating our recent pattern of seeing wild price swings in the final hour of trading. The Russell 2000 (NYSE:IWM) closed down 3.79, or 0.84%, at 447.51, which marked the lowest daily close since June 2003.

Small caps were hammered relative to large caps, with the Dow closing up 1.83% on the day. For the year, the Russell is now down 42%, while the Dow is down 36% and the S&P 500 is down 41%. Just a few weeks ago, the Russell was only down about 2% for the year while the Dow was down 12%; as the market has collapsed investors have clearly shied away from riskier investment fare as there is a perception in times of crisis that big is better.

Speaking of risk aversion, money appeared to moving into credit markets today, with the yield on benchmark 10-year notes down 2.94%. Yields move inverse to price, so the slide in yields reflects demand for the Treasury product. The decline in yields appeared to pick up speed after the National Association of Home Builders/Wells Fargo Housing Market Index stumbled to the lowest point since the index was created back in 1985. The NAHB report effectively cut off at the knees any enthusiasm from a jump in Southern California home sales, especially heading toward the housing starts report Wednesday morning. That separate report on sales in SoCal showed a big surge in volume, but it came at the expense of price as bargain hunters snatched up a large batch of foreclosed homes at a big discount. There are many who say that the genesis of this global crisis dates back to the housing market collapse and they believe that we won’t see a bottom in the market until we see a foundation built for housing prices.

There is also a pocket of market watchers who believe that equities will have a hard time establishing a bullish foothold it is known what steps will be taken to shore up embattled automakers. General Motors Corp. (NYSE:GM) tumbled some 9% today as Treasury Secretary Henry Paulson said on Capital Hill that the $700 billion financial bailout plan should not be applied to automakers. Even as Paulson and Federal Reserve Chairman Ben Bernanke were busy updating progress on the TARP, auto executives were busy telling the Senate Banking Committee that they need a massive bailout to avoid not just a collapse for domestic vehicle firms, but also the nation’s . . .

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