Choppy early action digesting GDP, earnings news
Small-cap stocks edged higher on the opening, underpinned by a GDP report that wasn’t as bad as feared and by a smattering of decent earnings reports on the small-cap front that lifted the Russell relative to the large-cap indices. But those early gains were trimmed as the market remains concerned about the economy and corporate profits. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was down 0.17, or 0.04%, at 453.07.
The quarterly GDP report came in at minus 3.8%, which was quite a bit better than feared: the pre-release forecast called for a slide of 5.3%. Even though the report showed less contraction than expected in the economy, this still marked the worst showing for the U.S. since 1982. In addition, consumer spending dropped for two consecutive quarters for the first time since 1990-1991 as people struggle with sinking home values, mounting job losses and stock market devaluation. There was some concern that the “upside” surprise on GDP only delays the pain, especially as corporate layoffs have escalated in January.
While the GDP report was the primary target on everyone’s radar this morning, there were also economic releases on the employment cost index (it rose 0.6%, about what was expected); the Chicago Purchasing Manager’s Survey; and the Michigan sentiment survey. The Chicago headline figure came in at 33.3, which was below the forecast of 34.9 and which marked a new cycle low for the reading on Midwest manufacturing. The market appeared to slide after the Chicago number came out. Meanwhile, the Michigan figure was at 61.2, relatively close to the projection of 61.9.
One measure of just how ugly things have become, the Goldman Sachs Analyst Index (GSAI), a survey of Goldman’s equity analysts across a range of sectors, fell to an all-time low in January, Goldman said in a research report this morning. The GSAI survey began in 1996, and the latest reading declined to 13.4 from 26.7, which surpasses the old low by a fairly wide margin. The prior low, which came in October of 2001 during the aftermath of 9/11, was 21.9. Not only is the level of the GSAI very low, but the 8.5 point month-to-month deterioration between December and January was severe; a decline this steep has occurred only five times before, Goldman said.
Almost as concerning for the GSAI survey as the depth of the decline is its breadth. There are 10 components in the GSAI — sales/shipments, orders, inventories, backlogs, output prices, materials prices, exports, employment, wages and capital spending. Of those 10 components, nine declined, most of them quite steeply.
In overseas trading last night, Asian stocks took a hit, breaking a string of four consecutive winning days while cementing a big monthly drop for January (all of which sounds familiar on the U.S. front as well). In Asian trading, bank and tech stocks paced the declines, although shares in Hong Kong were up modestly hoping for rate cuts out of China.
Individual small caps on the move this morning included CyberSource Corp. (Nasdaq:CYBS) which gapped higher and jumped 20% as the electronic payment provider posted solid earnings results. Saia Inc. (Nasdaq:SAIA) also gapped higher after reporting quarterly profits, with the trucking firm climbing 18%. Overstock.com (Nasdaq:OSTK) also got an earnings lift today, with the online retailer climbing 15%. On the downside, Data Domain Inc. (Nasdaq:DDUP) fell 26% as the data duplication firm posted weak earnings.
On the U.S. corporate front, Amazon.com (Nasdaq:AMZN) and SunPower corp. (Nasdaq:SPWRA) beat the estimate and could attract buyers early today. However, as usual the bulk of the earnings news was less upbeat, with Proctor & Gamble Co. (NYSE:PG) coming in near the forecast, but with sloppy sales numbers. That same theme was seen for Honeywell International Inc. (NYSE:HON). Dow stock Caterpillar Inc. (NYSE:CAT) could be on the defensive following an analyst downgrade overnight. A positive note came this morning from Exxon Mobil Corp. (NYSE:XOM), as the oil firm reported solid profits.
From a charting perspective, Thursday’s collapse erased the upside breakout from Wednesday’s rise and left the market firmly entrenched in a sideways consolidation. For today’s action, look for support at 450, then 444 and 439. On the upside, resistance comes in at 459, then the key spot is back at 466 again.
