NVGN Small-Cap Leader Second Consecutive Day

For much of today's trading session stocks were weighed down by falling crude oil prices and an update to the IMF's expectations for the world economy.

Oil continued its six day slide dropping to barely over $60 a barrel from an eight month high of $73 just last week. The IMF announced that it expects the world economy to shrink by 1.4% in 2009, as opposed to its earlier estimate of 1.3%. Still, it did counter that by stating that growth in 2010 should be 2.5%, versus its April estimate of 1.9%.

The Dow closed up 15 points in a late move to finish at 8,178. The Nasdaq inched up just 1 point to close at 1,747 and the S&P 500 was down just slightly at 880.

The Russell 2000, an index of 2,000 small-cap companies, closed down 0.94% at 480.

Leading small-cap decliners was ARYx Therapeutics (Nasdaq:ARYX) down 43% after news was released of the failure of it's anticoagulant agent. The company announced that data from its studies of Tecarfarin did not indicate any statistically significant superiority over Warfarin, a commonly used blood-thinning drug.

Other decliners include Southern Community Financial (Nasdaq:SCMFO) down 23%; American Axle & Manufacturing Holding (NYSE:AXL) down 23%; Atlantic Southern Financial Group (Nasdaq:ASFN) down 17%; and YRC Worldwide (Nasdaq:YRCW) down 24%.

YRC was down yesterday on news that management and Teamsters union officials had still not found an agreeable resolution to YRC's continuing financial worries. Today the stock tumbled further as talks appeared to go nowhere on Wednesday. In addition to a slowing economy calling for less trucking, YRC has been hampered with integration costs from its Yellow and Roadway operations as well as picking up the tab on multi-employer pension plans. YRC participates in the Central States multi-employer pension fund and as other trucking companies have disappeared over the years YRC's responsibilities within the fund have grown. As with many other large industries, YRC is facing mounting pension liabilities that are hampering its ability to weather the recession.

Small-cap gainers were lead by Novogen Limited (Nasdaq:NVGN) up 31%. This is on top of Tuesday's 37% gain on news that the Novogen-licensed oncology drug Phenoxodiol showed great promise in treating acute lymphoid leukemia and may have applications treating autoimmune disease as well.

Other small-cap gainers include fellow pharmaceutical Targacept (Nasdaq:TRGT) up 28% on news that development of its ADHD drug will move forward in studies. The company will receive a $10 million payment from development partner AstraZeneca (NYSE:AZN) and remains eligible to receive an additional $100 million. Leaders also include Internet Initiative Japan (Nasdaq:IIJI) up 23% and biotech firm Amgen (Nasdaq:AMGN) up 14%.

*****Yesterday, Reuters reported that the delinquency rate on credit card debt hit 6.6% in the first quarter of 2009. On mortgage loans, delinquencies hit 3.5%.  
I can virtually guarantee both numbers were higher in the second quarter. And I expect them to move still higher in the future.  

Unemployment will continue to rise. And even when it stops rising, it's not going to magically reverse course, not when the U.S. economy is only growing 1% or 2% a year.  
The recession we're possibly on the verge of exiting has been unique. It wasn't a consumer-led recession. Rather, it was a fundamental recession brought on by weakness in the very foundations of the U.S. economy.  

You don't wake up from this with just a hangover. You wake up without your car because you just wrecked it and your driver's license has been suspended and you now have to take a bus wherever you want to go.  

*****That's why the IMF and the G-8 is now calling for more stimulus packages and funds. The G-8 is meeting in Italy. The U.S. appears to be in "wait and see" mode, despite some calls for more stimulus programs. And rightfully so. The U.S. done a lot, maybe more than it should, to throw money into the system. It's time for some others to step up and do what they can do. 

At the same time the G-8 is talking stimulus, it's also talking about how to reign in stimulative monetary policy. This undoubtedly a good thing. We're all well aware that if rates don't rise, and liquidity gets sopped up, then inflation could run rampant.  
Of course, inflation is not much of a threat now. But once the global economy starts growing again, central banks will have to respond with higher rates, even though growth won't be robust. (If you're interested in loading up on the stocks that will outperform once inflation hits click here for my Inflation Busters report.) 

*****This is a very interesting time for investors. It's going to be critical to be in the right stocks, and in the right sectors. Equally important will be avoiding sectors that are facing significant headwinds. Financials still seem to be among the most vulnerable sectors, while technology and healthcare are demonstrating a lot of promise.  
Investing in this new economic paradigm (which I haven't come up with a name for yet) is going to be a common theme for us here in SCI Daily.

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