Another collapse as earnings disappoint, commodities tank

Small-cap stocks cascaded lower Wednesday as a spree of soft earnings reports and a dreary outlook as the economy veers into recession took a toll on the market. The Russell 2000 (NYSE:IWM) closed down 28.85, or 5.43% at 501.97. This was the second-lowest close in five years, and both of those closes have taken place within the last three weeks. This also marked the fifth-largest one-day decline of the year. The Russell is now down 33.4% for 2008, while the Dow is off 36.36% and the S&P 500 is down 38%. Although the Russell and Dow averted sinking to fresh closing lows for the bear market collapse, the S&P 500 and Nasdaq 100 did set new closing lows.

Although there were isolated upside earnings surprises as the market digests a flood of key reports this week, the overriding investor sentiment right now is that the results are relatively soft and were already watered down to begin with (from an expectation standpoint). What’s more, concerns that consumer spending and a global growth stall will pinch corporate profits even more in the months to come clearly had a negative impact on stocks. Even the companies with solid profits were wary of the operating environment heading into 2009. Even McDonald’s Corp. (NYSE:MCD) — which by most accounts posted impressive results — was unable to post a positive close for the day.

Another theme that remained at play was the wipeout in commodity valuation and the impact that had on stocks with commodity themes. Commodity firms dominated the list of worst performing sectors today, paced by metal and mining shares, coal stocks, oil and gas drillers, aluminum and gold. Other sectors taking a body blow today included motorcycle manufacturers, restaurants, tobacco companies and internet retail stocks. On a depressing side note, there wasn’t even one broad S&P sector group in the plus column late this afternoon.

The slide in commodities was reflected by a huge decline in the Commodity Research Bureau Index, which tumbled 4.5% to the lowest point since August . . .

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