Harry Rady News

By Geoffrey Rogow Of DOW JONES NEWSWIRES
APRIL 20, 2009
NEW YORK (Dow Jones)–A wave of selling in small caps dented six weeks of gains Monday as concern about the tone of earnings reports to come unseated some recent economic optimism in the forefront of traders’ minds.
Setting the tone in Monday’s session for small caps was banks. Though large banks, such as Bank of America did on Monday, have been reporting better-than-expected earnings and lifting the broad sector higher, regionals operate much differently than their larger counterparts. While their lack of diversification was a benefit in 2008, it is making investors more skittish now.
“Whenever [regional banks] report, there is such a heavy concentration of real estate and construction loans that are creating discomfort and problems that the reserves have to be beefed up,” said Bob Johnson, a portfolio manager with Satuit Capital Management. “Charge-offs are much higher than people have been anticipating, and that will eat into book value and reported earnings.
“Among the reports Monday, S&T Bancorp swung to a $3.1 million first quarter net loss on a $21.4 million loan-loss provision. S&T closed down 6.01, or 24%, at 18.61.
Overall, the Russell 2000 index of small-capitalization stocks lost 26.88 points, or 5.61%, to 452.49.
The Standard & Poor’s Small Cap 600 declined 14.03, or 5.5%, to 240.85.
With crude oil prices declining more than $4 a barrel and some metals, such as copper, also falling, energy and materials stocks were also leading laggards. Notably, Swift Energy fell 1.37, or 13%, to 9.59, on the New York Stock Exchange, while Century Aluminum slid 88 cents, or 23%, to 2.94.
Despite the big pullback Monday, small caps have been on a tear for the past six weeks with the Russell up more than 30% from its March low point. Even with the gains, however, traders lament a lack of confirmation from the credit markets, which have yet to improve greatly.
Moreover, though some economic reports have provided evidence of improvement domestically, little from corporations signals repair.
“Because these earnings haven’t been as bad as feared, it’s just provided an opportunity to put on more shorts. It’s just another head fake,” said Harry Rady of Rady Asset Management.