Brief bid disappears as overseas drop, awful data in play
Small-cap stocks opened lower, quickly recouped the losses but then resumed the downdraft in whipsaw trading, as the market tried to shrug off overseas declines. A fresh batch of economic data on housing starts, consumer inflation and mortgage applications was predictably awful, but not a surprise. At 9:56 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.39, or 0.76%, at 444.12. It’s worth noting that opening losses in equities were not nearly as steep as feared as commodity markets started to firm up in the minutes leading up to the stock market open.
The housing starts report came in at 791,000 units, which was better than the forecast of 780,000. That said, the number was still terrible. Single-family housing starts tumbled to the lowest level in 27 years. Meanwhile, the CPI report came in at minus 1%, which was the biggest drop since the data series began 61 years ago. Even the “core” rate, which excludes energy and food prices, slipped 0.1%, which was the first decline in core rates in 26 years. The dramatic free-fall in prices was also seen at the producer level on Tuesday’s PPI report and could stir up worries of deflation. Earlier today, the MBA Mortgage Application Index dipped 6.2% and continues to hover near eight-year lows. None of these reports contained “good news” for the market, but they were well within the range of expectations and appeared to have little immediate price impact.
The market was already limping into the session following another pullback in stock markets overseas. European shares were off about 1.5% heading into the U.S. session. In Asian trading, Japan was down 0.6%, Hong Kong off 0.7%, Australia down 0.6%, Singapore down 1.5%, South Korea off 1.8% and India down 1.8%.
Energy shares were an important part of the large-cap rally Tuesday, and appeared set to be a bearish element for stocks today after crude oil prices slipped to 22-month lows overnight. However, commodity markets started to rise off the overnight lows about 20 minutes ahead of the stock market open, which helped limit initial losses for equities. The U.S. dollar was down 1% against the euro, which provided some support to the commodities sector. Shortly after the open today, the Energy Select Sector SPDR Fund was up 0.5% as crude oil prices climbed back into positive territory.
Financial shares were a drag Tuesday and remain a trouble spot this morning after analyst downgrades for U.K. banks overnight, negative analyst notes for Citigroup Inc. (NYSE:C) and worries that the TARP funds haven’t yet restored normality to the lending arena. The Financial Select Sector SPDR Fund was down 0.2% and Citigroup shares were off 2.9%.
Stocks were hampered by money flow issues away from equities as investors search for a safe-haven outlet. Demand for Treasury products has sent yields on two-year notes, 10-year notes and bonds reeling in recent days. In Europe, bunds climbed to the highest price since March 2006, while the yield on two-year Treasury notes tumbled to five-year lows ahead of the stock market opening. That said, yields bounced off the morning lows when the stock market had a surprisingly solid opening.
The drama surrounding U.S. automaker efforts to secure emergency funding from the government remains a focus for the investment community. Auto executives will be in Washington again today to lobby for aid, in an issue that has been contentious from a political standpoint. General Motors Corp. (NYSE:GM) was off 6.1% on the open, while Ford Motor Co. (NYSE:F) was down 0.6%.
Individual small caps on the move this morning included Genesco Inc. (NYSE:GCO), which tumbled 11% as the specialty retailer reported earnings and revised guidance. Arbitron Inc. (NYSE:ARB) was down 10% as the media and marketing research firm tumbled to fresh 52-week lows. On the upside, Sappi Ltd. (NYSE:SPP) rose 15% as the maker of fine paper for glossy magazines gapped to the upside after collapsing Tuesday.
Looking at the chart for the Russell 2000, the picture retains a powerful bearish stance after the Russell slumped to fresh bear market lows Tuesday. On the bright side, an argument can be made that the solid rally off the intraday low into the close left a little bullish reversal on daily studies and a potential double bottom on daily and weekly charts – but the market will have to rally away from here to provide any confirmation for that optimistic viewpoint. With the market back near 5-year-plus lows, it’s much easier to gauge resistance than support. For today’s action, initial support is at 442, then at 432. Below there, support becomes a nebulous task. On the upside, resistance is near 450, 459, 464, then up at 479.
