Choppy trade as money flow, crude fears counter data
Small-cap stocks gyrated between positive and negative territory in the first half hour of trading as record-high crude oil prices, safe-haven flow away from stocks and steep declines in global markets overnight countered a decent personal income report. The market was oversold after Thursday’s collapse, and price action could be choppy ahead of the end of the quarter. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 1.62, or 0.23%, at 700.04.
The Michigan sentiment survey slipped to 56.4, which was slightly below the forecast of 57, but the number was not enough of a surprise to spark a big move in stocks.
The personal income report headline figure jumped 1.9%, which was well beyond the median forecast for a rise of 0.7%. However, when discounting the impact of the tax stimulus checks, real income was only up 0.4%. The May PCE deflator was up 0.1%, which was better than the forecast for a rise of 0.2%, which sparked a pre-opening bounce off overnight lows in stock index futures.
“Real consumer spending jumped in May, boosted by the tax stimulus checks,” Steven Wood, chief economist with Insight Economics, said in an email. “This will allow consumer spending to rebound and keep Q2 growth positive (albeit weak). After the rebate checks are spent, ongoing job losses will weaken income growth, slow consumer spending and dampen economic growth during the second half of the year. Eventually, weak economic growth will dampen inflation — at least that’s the FOMC’s hope,” Wood said.
Despite the mild upbeat news from personal income data, the market still was on edge about crude oil prices, which climbed to a fresh record high overnight above $142 dollars a barrel. Crude prices backed off toward $140 into the stock market opening, but were still on track for the highest weekly close ever. Also, grains calls were sharply higher a day after corn set a new record high, and the U.S. dollar was down about 0.5% against the yen (basically flat versus the euro).
Equity markets around the world tumbled overnight, catching up with the big slide registered in U.S. stock markets Thursday. Japan shares were down 2%, Hong Kong off 1.8%, China down 5.5%, Taiwan down 3.3%, India down 4.3%, Australia down 1.3%, Singapore down 0.8% and South Korea off 2%.
Broad market sectors on the move this morning were highlighted by casinos, which slumped 7% shortly after the open. Homebuilders, leisure products, airlines and photo products were also attracting sellers. Sectors on the rise were paced by metals and mining shares, wireless telecoms, gas utilities and brewers.
Some of the large-cap stocks on trader radar screens today include Accenture (NYSE:ACN), which rallied 5% on the opening today after reporting strong earnings last night and raising full-year guidance. Andersons Inc. (Nasdaq:ANDE) jumped 19% as the firm also raised yearly guidance. AK Steel Holding Corp. (NYSE:AKS) rose about 5% as the company will join the S&P 500 next week. On the downside, KB Home (NYSE:KBH) was off about 3.5% as the housing slump took a bite out of results.
Small-cap stock Palm Inc. (Nasdaq:PALM) was down nearly 6% after reporting a quarterly loss as sales of older phones such as the Treo were slowing. SunOpta Inc. (Nasdaq:STKL) tumbled about 13%, gapping lower as the company updated earnings results. Molecular Insight Pharmaceuticals (Nasdaq:MIPI) was down 7% without any fresh news. On the upside, Finish Line Inc. (Nasdaq:FINL) was up 12%.
The chart picture in small-cap stocks retains a bearish bias as the market broke down into a new lower range earlier this week, then confirmed the breakout in dramatic fashion during Thursday’s rout. The market is approaching the first key target for the move at 690, and short-term momentum readings are oversold, which could spark short-covering from hot money traders who caught the breakdown this week. In addition, the market is rapidly approaching the end of the month and the quarter-end, which could spur some portfolio shifts and add a little choppy action into the mix today and Monday.
