Small caps sink; commodities unravel on global econ jitters

Small-cap stocks extended the morning swoon into midday trading, tugged lower by sloppy earnings and worries that the global economy was entering a deep slowdown headlined by a recession in the United States and a dive in demand from China. At 12:21 p.m. ET, the Russell 2000 (NYSE:IWM) was down 15.13, or 2.77%, at 531.71.

The global economic fears were stirred by a pullback in China factory output to six-year lows. Amid the economic worries, the price of copper tumbled to near three-year lows and has collapsed more than 50% since May. Why does copper matter? It is considered a key benchmark of economic growth around the world. During the big bull market run from 2002 to 2006 the price of copper went from about $0.65 a ton to more than $4 (a stunning rise in value of more than 500%). Much of that soaring demand was fueled by astounding economic growth in China, where the world’s fourth-largest economy basked in double-digit GDP for years on end. However, the latest GDP report out of China slipped to a pace below 10% for the first time in five years. In short, if copper is struggling, the global economy is struggling.

Along that line of thinking, stock markets and/or currency valuations on heavy commodity producing countries like Canada and Chile were taking a hit. In Canada, commodity stocks were sinking and pulling down the overall stock indices, while in Chile, the peso crumbled some 3%. Copper accounts for more than half the dollar value of Chilean exports. What’s it all mean to stocks here in America? So far today, stocks with commodity themes were getting hammered. The worst performing broad market sectors at midday included metals and mining stocks, steel, gold, integrated oil and gas firms and coal shares.

Small caps taking a hit today included ENGlobal Corp. (Nasdaq:ENG) as the engineering firm released preliminary earnings that were compromised by Hurricanes Ike and Gustav. ENG shares were off some 32%. Telecom Argentina SA (NYSE:TEO) tumbled 28%, sinking to fresh 52-week lows. TEO stock has been steadily declining for months since peaking just above $27 last November. The stock is now . . .

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