Mild dip for Russell amid volatile intraday swings

Small-cap stocks closed lower in a topsy-turvy session that saw a morning rally snuffed out in favor of a steep midday slide, then an abrupt afternoon recovery move that must have left day traders dizzy from the volatility. In the end, the market was unable to recapture the morning bid as financial stocks were beat down by renewed fears on the credit crunch front and by safe haven money flow from stocks to bonds. The Russell 2000 (NYSE:IWM) dipped 2.01, or 0.27%, to 739.00.

For the second day in a row, the spotlight moved back to banking, brokerage and the financial sector. The poster child for today’s action was Lehman Bros. (NYSE:LEH), whose stock was hammered some 14% at one point, sinking to the lowest point since March 17 on reports that the firm might seek to raise capital. The company said it did not access the Fed’s discount window today, which helped lift the stock off the lows in the afternoon. Although there was some debate about whether or not Lehman indeed would seek to bolster their balance sheet by raising capital, some investors appeared to adopt a “sell now, ask questions later” approach to the news, remembering the fallout from the Bear Stearns collapse.

Despite lingering concerns about debt write downs tied to the credit crisis, the market actually started out on a strong note today, with the Russell climbing nearly 0.75% to the highs before stalling. At first blush, there appeared to be plenty of bullish fodder to fuel a recovery move after Monday’s big decline, as investors embraced comments from Federal Reserve Chairman Ben Bernanke, crude oil prices took a nosedive and the dollar strengthened. However, the market could not shake the credit crunch jitters that triggered the selling push both Monday and again today, and before long all the green prints in equity products had turned to a sea of red.

Bernanke addressed the dollar in a much greater scope than what the market tends to see from the head of the Federal Reserve, which got the attention of foreign exchange traders and sparked a big rally in the greenback. The dollar was trading lower against the euro ahead of the Bernanke comments, but tumbled some 200 basis points from high to low, which in turn triggered a slide in crude oil and a host of other commodity markets. This was the first public policy appearance by Bernanke in weeks, and he also said that until the housing market stabilizes that growth risk was to the downside. The rare Fed attention on the dollar left an impression with market watchers that Bernanke was focused on inflation and that rate cuts are on . . .

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below