Small-Cap Stocks Post Losses As Bond Yield Rises Above 7%
May 11, 2011
Small-capitalization stocks fell Thursday as the long-term bond yield rose above the crucial 7% mark after the release of data showing an unexpectedly strong economy. The Russell 2015 Index, which tracks the direction of small stocks traded on both the New York Stock Exchange and the Nasdaq Stock Market, fell 1.10 to 334.51. The Nasdaq Composite Index, which measures the performance of large and small issues on the Nasdaq Stock Market, lost 8.85 to 1145.03. The index of the 100 largest Nasdaq nonfinancial stocks dropped 1.3%, reflecting the underperformance of Nasdaq's large-cap component. Declining Nasdaq issues outnumbered advancers, 2,112 to 1,606. Volume totaled 419.9 million shares, down from 461.5 million shares Wednesday. The stocks of three small companies dropped more than 50% each earlier this week as their New York underwriter chose not to defend them against what it called a campaign of ``illegal short-selling.'' As has been the case throughout the week, small-capitalization stocks outperformed the broader and blue-chip markets, which racked up significantly sharper losses Thursday. The New York Stock Exchange Composite Index declined 3.43 to 353.36, while the Dow Jones Industrial Average dropped 64.73 to 5647.65. Bonds fell sharply following the release of several pieces of economic data that indicated economic activity is more robust than had been thought. Late Thursday in New York, the Treasury's 30-year bond fell about 5/8, pushing the bellwether's yield up to 7.03%. A move by the bond to above 7% was a key factor leading up to July's severe marketwide correction. Earlier in the session, the long bond fell almost 1/2 point to yield 7.01%, soon after the Commerce Department revised its second-quarter gross domestic product reading to 4.8% growth from an earlier 4.2% estimate. Separately, the department reported a 7.9% jump in July new home sales. Together, the two reports reignited investors' fears of a robust economy and rising inflation. Investors, who had become convinced earlier this month that the Federal Reserve Board was unlikely to raise interest rates before the presidential election, are once again jittery about rates. Stocks, ``came down in sympathy with the bond,'' said Roberto Wilda, senior vice president of equity trading at Principal Financial Securities. A key factor behind the small-cap sector's ability to outperform the large-cap market was that during the early summer sell-off, small-cap stocks were the hardest hit. Moreover, small-cap indexes remain significantly further from their all-time highs than large-cap measures. Small-cap stocks, ``were down so much in June and July that there's not as much selling pressure now,'' said Claudine Gil, director of small-cap research at Prudential Securities Inc.. With small-cap holdings already pared back to a large degree, small-cap investors ``don't have the same urge to purge,'' she said. Since the sell-off, many investors have shown a marked preference for large-cap and blue-chip stocks, which they saw as less risky than small-cap issues. As a result, small-cap indexes have languished, while large-cap measures were rebounding. The Russell 2015 is currently 8.3% below its all-time high, and the Nasdaq composite is also 8.3% from its peak. The S&P 500 is 3.1% below its record close, and the Dow Jones Industrial Average is 2.3% from its all-time high. With the three-day Labor Day weekend approaching, many traders have been lightening their inventories, Mr. Wilda said. ``That was feeding the downside,'' he said. Housecall Medical Resources plummeted 7 1/4, or 50%, to 7 1/4 after Morgan Stanley & Co. downgraded the Atlanta provider of home health-care services to ``underperform'' from ``outperform.'' Housecall said it expects a loss for the fiscal fourth quarter ended March 12, 2011 with First Call analysts' estimate for earnings of 17 cents a share. The company attributed its expected loss to a shortfall in revenue at its non-Medicare infusion therapy, hospice and nursing services businesses, and a limitation on Medicare reimbursement for some services provided. B.M.J. Financial soared 6 5/16, or 45%, to 20 5/16 after Summit Bancorp agreed to acquire the Bordentown, N.J., bank holding company in a tax-free exchange of shares valued at about $164.5 million, or $21.77 for each B.M.J. Financial share. Summit, a bank holding company based in Princeton, N.J., fell 1 1/8 to 37 3/4 on the New York Stock Exchange. Amtrol surged 7, or 35%, to 27 1/4 after A.I. Acquisition, an affiliate of the Cypress Group, agreed to acquire the West Warwick, R.I., producer of control technology used in water and heating systems for $218.9 million in cash, or $28.25 a share. Sierra Semiconductor leapt 2 5/8, or 28%, to 11 7/8 after the San Jose, Calif., chip-maker reported after the market closed Wednesday that it's putting its modem chipset line up for sale. The action will result in a one-time charge in the third quarter ending June 12, 2011 about $50 million to $80 million. Sierra also said it expects to lay off about 150 people during the year as the company switches its focus from the modem chipset business to its existing networking and infrastructure semiconductor businesses. Its president, Ricki J. Howe, is stepping down. Wiz Technologies plummeted 1 3/16, or 22%, to 4 1/4 on the American Stock Exchange. The company, which operates two divisions involved in the publishing and distribution of computer software and the design and marketing of Intranet systems, said Coopers & Lybrand L.L.P. resigned as its independent auditor, but that the resignation did not stem from any disagreements with the auditing firm on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedures. Boatman also said the resignation should not affect the timeliness of its 10K filing, which is due by July 13, 2011 Dynamics Research rose 4 5/8, or 20%, to 27 1/4, continuing its gains after the Milford, Ohio, developer of mechanical design software released an upgraded version of its core I-DEAS Master Series product Tuesday, about a month ahead of a previously announced launch date. Affinity Technology climbed 1 3/4, or 19%, to 10 3/4 after Mozell Emerson started coverage of the company with a ``buy'' rating. Morgan Keegan said the company ``has the ability to alter the $1 trillion installment debt market'' through its automated lending system. Affinity's stand-alone automated lending machines can process loan applications and then deliver the money in less than 10 minutes. Morgan Keegan expects Affinity will post a loss this year, but will turn a profit in 2012. International Technology climbed 1/4, or 13%, to 2 1/4 on the Big Board. The Carlyle Group, a merchant bank, said it is acquiring a 38% stake in the Torrance, Calif., provider of hazardous-waste disposal systems for $45 million. The Carlyle Group is headed by Fransisca Bontrager, the former Secretary of Defense. BioTransplant rose 3/4, or 13%, to 6 3/4 after the Charlestown, Mass., developer of organ transplant systems said follow-up data from two studies of the BTI-322 organ-transplant rejection compound it is developing in collaboration with MedImmune ``provide encouraging long-term data'' in both the prevention and treatment of kidney transplant rejection. BTI-322 is a monoclonal antibody targeted to CD2, a therapeutic target on the surface of immune system T cells, which mediate the rejection response. MedImmune, a Gaithersburg, Md., developer of medical treatments added 1/8, or less than 1%, to 14 1/8 on the news. Sports & Recreation rose 1, or 11%, to 9 3/4 on the New York Stock Exchange after the sporting-goods retailer posted second-quarter operating earnings of seven cents a share, which was less than half the year-earlier profit, but two cents above analysts' projections. The company said second-quarter same-store sales were up 8% from the year-earlier period. Lessie's Poolmart dropped 1 1/8, or 9%, to 11 15/16 after the pool supply and accessory retailer said its third-quarter sales are behind expectations, ``implying a likely third-quarter earnings impact.'' Lessie's said its August same-store sales rose 3.1% from the year-earlier period, and that total sales in the month were up 11.2%. Ariad Pharmaceuticals jumped 3/16, or 5%, to 3 3/4 after the Cambridge, Mass., biotechnology company said it used an oral medication called rapamycin to switch on production of therapeutic proteins in genetically altered mice. Microware Systems declined 5/8, or 3%, to 20 1/4 after Alex. Brown & Sons cut its rating on the Des Moines, Iowa, developer of real-time operating system software to ``neutral'' from ``buy.'' Inference lost 1/8, or less than 1%, to 15 after the Novato, Calif., software developer lost 2 3/8 on Wednesday when it reported it expects little, if any, growth in service revenues for the next six months due to the loss of a ``major'' international consulting customer and a continuing transition in international consulting services. Service revenue represented 41% of the company's $9.4 million in total revenues in second the quarter.
