Russell slips back into red midday

Jennifer Schonberger | Oct 23, 2008 12:17pm EDT | Comment

Rating: Unrated [rate it]

The Russell 2000 is in the red midday, after staging a rally above the 500 level, at the time pulled higher by bargain hunters, and as energy stocks lifted other indices. At 11:45, the small cap index (NYSE:IWM) was down 6.83, or 1.36%, at 495.14.

Today’s action comes on the heels of a 5% swoon Wednesday, as fears swirled that government action wouldn’t tame the global financial tempest. Though small caps continue to waver in volatile trading, the backdrop remains gloomy. Jobless claims, out this morning, pointed to recession. The weekly unemployment claims report clocked in above the forecast at 478,000, trumping the projection by 13,000. The Labor Department said that claims were boosted some 12,000 by Hurricane Ike and that the number of continuing claims dipped slightly in the latest week.

Former Federal Reserve Chairman Greenspan, who testified in front of a House panel on the root of the financial crisis this morning, cautioned that unemployment will only rise from here as the country works through this credit crisis. “Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment,” Greenspan said. “Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity.”

Greenspan said that a stabilization in home prices will mark an end to the credit crisis, but cautioned that wouldn’t happen for many months to come. After that stabilization, the former U.S. central bank head said investors will slowly begin to take on risk.

In other offsetting economic news, RealtyTrac released a report early this morning saying that foreclosures were up 21% from September 2007 and up a whopping 71% from the third quarter of last year. They estimated that 1 in every 475 homes received a foreclosure filing in September.

Crude oil is trading higher midday on expectations that OPEC will cut output Friday. Ahead of an OPEC meeting this morning, the Saudi Arabian minister said that the market would determine the price of crude oil. A barrel of light sweet crude gained $2 to $68.

The dollar is lower against the euro and the yen midday, following a breach of multi-year highs against the euro and pound on Wednesday.

In large cap headlines, Goldman Sachs Group (NYSE:GS) said it will slash 10% of its 32,600 workforce, as the financial crisis continues to weigh on the bank.

United Parcel Service (NYSE:UPS) posted a nearly 10% decline in its bottom-line for the third quarter. The package-delivery company cautioned that the environment remains challenging for the coming quarters, as the consumer is expected to pull in his/her purse strings.

Amazon.com Inc. (Nasdaq:AMZN) beat the third-quarter profits forecast but predicted holiday sales would miss Street expectations, showing that online retailers are not immune to the slowdown in economic activity.

In broader industry groups, integrated oil and gas, pipelines and full-line insurance were gaining ground, while renewable energy equipment, mortgage finance and home construction were among those under pressure midday.