Downbeat economic data, mixed earnings bag pressure small caps
Breaking a green streak this week, small caps are crumbling mid-session after weaker-than-expected existing home sales, higher weekly unemployment claims and a mixed batch of earnings zapped the market’s optimistic sentiment.
At 12:20 p.m. ET, the Russell 2000 (NYSE:IWM) was down 7.46, or 1.04%, at 711.73, while the Dow was down 133.2, or 1.15%, to 11,499.18.
The market got a dose of reality this morning when existing home sales for June reportedly fell 2.6% to an annual rate of 4.86 million units, below the forecast of 4.93 million. It marked the lowest level in 10 years and was down 15% from last year. In addition, the inventory of homes available for sale rose to 11.1 months, up from 10.8 months in the May report. The national median home price also tumbled 6.1% from last year.
Adding insult to injury, data on weekly claims came in much higher than expected, painting a somber picture on the employment front. The headline figure for weekly claims was at 406,000, far above the forecast of 380,000. Continuous claims dipped slightly, but the 4-week moving average rose. There was, however, some thought that the weekly claims report was at risk for an upside surprise amid layoffs in autos, airlines and banks.
In another negative chapter to the credit crisis saga, two units of UBS are being sued by New York Attorney General Andrew Cuomo, for allegedly misconstruing the risks associated with auction-rate securities to clients by painting such securities as safe and liquid investments.
Negative corporate earnings appeared to overshadow the positive earnings results in the wake of weak economic data today. Automaker Ford Motor Co. (NYSE:F) reported its worst quarter ever, swinging to a second quarter loss of $8.67 billion on account of $5.3 billion worth of North America asset write-downs, charges of $8 billion and a $2.1 billion loss on its operating lease portfolio. The quarterly loss was substantially wider than the consensus on the Street. Chemical juggernaut Dow Chemical (NYSE:DOW) also missed the consensus forecast, as higher costs for raw materials ate away at earnings in the quarter.
On the flip side, online retail website operator Amazon.com (Nasdaq:AMZN) posted robust second-quarter earnings that topped the Street’s forecast, as did drug makers Bristol-Myers Squibb Co. and Eli Lilly & Co., as the beleaguered dollar bolstered foreign sales.
Crude oil prices are edging slightly higher mid-session, up $0.43 to $124 a barrel. Today’s milder moves come on the heels of a steep $4 drop Wednesday that put an exclamation point on a recent $23 collapse. The recent substantial pullback suggests that hedge funds have been unwinding long oil positions.
In a research report this morning, Goldman Sachs maintains a long-term bullish view for energy, but said that the recent pullback in oil potentially represents a meaningful shift in the near-term trading landscape. “Not only could it continue to force people out of sector trades, but by improving the growth/inflation trade-off it is favorable for broader equity risk. This kind of dynamic has echoes of the summer of 2006 when an inflation-driven growth scare ultimately led the way to lower oil prices and broad market relief.”
In broader industry groups, schools, home improvement retailers and healthcare drug makers are pushing higher on the session, while printing services, casinos and coal are losing ground.
Small-cap stocks on the move midday include Cirrus Logic Inc. (Nasdaq:CRUS), which has spiked 27% midday after the analog and integrated circuits developer provided an upbeat second-quarter outlook after Wednesday’s close and analysts at Needham upgraded the Austin-based company to “buy” from “hold.” Penson Worldwide, Inc. (Nasdaq:PNSN) is soaring 22% after the trading and clearing services provider said late Wednesday that its second-quarter revenue rose to $74.6 million, from $64.4 million a year earlier. The results beat Wall Street’s expectation of $68.1 million.
On the downside, information technology product maker TechTarget Inc. (Nasdaq:TTGT) has skidded 28% mid-session after announcing ahead of the open that it’s lowering its full year guidance.
