Small caps yo-yo in the red

Jennifer Schonberger | Oct 24, 2008 12:42pm EDT | Comment

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Small caps continue to yo-yo in the red, as better-than-anticipated existing home sales help to quell selling earlier; but, fears of a global recession continue to grip small caps. At 12:43 p.m. ET, the Russell 2000 (NYSE:IWM) was down 15.32, or 3%, at 474.65.

Small caps started the day sharply lower, but not as bad as futures had indicated. After sheer panic spread through overseas markets on economic slowdowns and lackluster corporate earnings, fear gauges broke open in pre-market trading, causing stocks to plunge so sharply (550 points) that futures trading was halted. Overseas markets were on average down 10% across the board. After Sony halved its outlook, Asia swooned. Markets also toppled on news that Britain’s economy grew at a slower-than-expected pace of 0.5% in the third quarter and Korea screeched to its slowest pace in four years.

On the dismal news that drives these painful sell offs, BMO Capital Markets Andy Busch says the U.S. is the sole entity adequately large and coordinated enough to deal with the burgeoning issues surrounding the credit crisis, and “it's not doing a great job,” he said. “This means the rest of the world cascades down into the madness of financial anarchy that currently exists. We have massive hedge fund and bank deleveraging at its most extreme. It clearly is not over.”

However, Busch says this weekend the U.S. Treasury should inject another dose of liquidity into markets with a potential focus on U.S. auto markers. “Additionally, the G20 meeting on November 15 could bring the development of new financial architecture to alleviate stress levels,” he said. “Unfortunately, this all takes time and the markets don't wait.”

Stocks pared losses after existing home sales clocked in better than expected. Existing home sales came in at 5.18 million units, substantially above the forecast of 4.98 million. The September rise of 5.5% marked the highest percentage rise since July 2003 and the rate was the best since August 2007. After a bleak report on foreclosures Thursday, the existing home sales report was welcome news on the housing market; however it most likely doesn’t mark the beginnings of a bottom.

As equity markets remain in sell off mode, investors yet again poured into treasuries. The yield on 30-year bonds tumbled to the lowest in history since the product issuance began back in 1977. Meanwhile, the yield on benchmark 10-year notes was down more than 4%.

The greenback is mixed against the euro and the yen midday. The dollar has rallied against the euro to $1.2651.

Oil futures continue to sell off despite OPEC’s statement to cut production by 1.5 million barrels, as investors anticipate a global recession and therefore waning demand for energy. A barrel of light sweet crude was off nearly $3 to $64 mid-session.

In broader industry groups, alternative energy, gold mining and diversified REITs are higher, while full line insurance, nonferrous metals and oil equipment and services are under pressure.

In large cap news, PNC Financial (NYSE:PNC) said it will acquire National City Corp. (NYSE:NCC) for $5.6 billion, essentially bailing out the reeling Ohio bank.

General Electric (NYSE:GE) is expected to tap the Federal Reserve’s Commercial Paper Funding Facility and will borrow as much as customers need, according to Bloomberg.

In small cap headlines, Bucyrus (Nasdaq:BUCY) International posted third-quarter results that fell short of the Street. Shares are down 7% midday. Almost Family (Nasdaq:AFAM) is down 6% after the CEO said he will sell 17% of his current holdings. Liz Claiborne (NYSE:LIZ) is off 3% after the women’s retailer lowered its full year outlook and said it expects third-quarter sales to clock in below analysts’ estimates. Gannett, (NYSE:GCI) publisher of USA Today, posted a 32% drop in earnings, which also missed the Street by penny. Shares are down 5% midday.