NEW YORK (CNNfn) - As Wall Street feels the weight of new developments in Asia, the traditional "January Effect" in which small cap stocks -- including last week's crop of initial public offerings -- outperform larger companies, is being put to its toughest test in years.
In fact, if the January Effect does strike in 1998, the small caps will have a lot of ground to make up after their sluggish start. Last week the Russell 2000 index of small cap stocks suffered a record year-opening loss of 5.4 percent and the S&P SmallCap 600 plunged 5.8 percent. Both declines were steeper than those suffered by the Dow Jones industrials and Nasdaq Composite indices.
Two small cap IPOs turned in a zero return last week: Resource Asset Investment Trust and Diversified Senior Services, Inc.
Resource Asset Investment Trust (RAIT), the real estate investment trust with a heavy concentration in multifamily buildings in Philadelphia, finished its first day of trading at its offering price of $15, despite the company's efforts to reduce the number of shares to make it more attractive.
The REIT, which had already pushed back its scheduled offering date by weeks, moved ahead with the deal, but raised only $42.5 million, far less than the $150 million it had initially projected.
Diversified Senior Services (DISS), an operator of assisted living residences and low- and moderate-income apartment complexes, managed to increase the number of IPO shares offered to the public by 25 percent, raising a total of $7.5 million. But investors still greeted the offering with a yawn, and after pricing at $5, the IPO ended there.
The disappointing debuts mirror the recent trend in January IPOs. Since 1995, January deals generated smaller premiums and slower first day volumes than average. January has also been the slowest month on the IPO market overall in three out of the past five years.
Although January still has three weeks left, a more ominous sign comes from the performance of the Russell 2000. In 1990, the index fell 3.1 percent during the first full week of January, marking the worst new year debut for the index ever until last week. During that year, one of the worst ever for the Russell, the index collapsed a total of 19.5 percent with the average IPO returning a negative 10.5 percent.
The bad omens are likely to draw the fearless to the IPO market, including the three deals in this week's pipeline which are expected to raise a collective $30 million.
Slated to price Monday is 800 Travel Systems, a company which acts as a travel agency with an emphasis on helping budget travelers find the cheapest fares. The company generates its revenues from commissions on air travel arrangements and shares are expected to price at $5, raising $9.3 million.
Gay Entertainment Television, a production company devoted to creating and developing programming for the gay and lesbian lifestyle, prices this week as well. Predicted risks for this company will be the fierce competition for distribution on cable systems and for advertising dollars. Gay Entertainment is expected to price at $4.15, raising $9.9 million.
Dynamicweb Enterprise is set to raise just over $7 million with a $4 IPO. A developer and marketer of software products and services designed to enable electronic commerce over the Internet, Dynamicweb hopes to capitalize on the growing Internet sales market.
-- by Bambi Francisco for CNNfn Interactive