Earnings, Geithner OK help, but weak confidence data trims gains
Small-cap stocks edged higher as earnings were a little better than feared (though still weak overall) and as investors are hoping for quick action from the Treasury Department now that the confirmation of Obama’s new Treasury leader has been wrapped up. However, soft readings on consumer confidence appeared to stall buying interest. At 10:05 a.m. ET, the Russell 2000 (NYSE:IWM) was up 2.34, or 0.52%, at 452.40.
The consumer confidence report came in at 37.7, below the forecast of 39, and which pulled equity markets slightly off the early highs. Earlier today, the Case-Shiller Home Price Index fell 2.2% in November from the previous month and was down 18.2% from year-ago levels, which marks a record decline in home values. The month-over-month decline was slightly worse than forecast, but the stock index futures seemed to weather the data well ahead of the opening. Although this data series looks gloomy, Monday’s existing home sales report came in above expectations and helped fuel a rise in equities. On Thursday, new home sales data will help provide further information about the housing market.
Some of the early rise in equities was tied to optimism that the Treasury Department will now act quickly to bolster bank balance sheets and fuel lending now that Timothy Geithner has been confirmed to the top post at the Treasury.
Earnings news this morning was mixed, with Texas Instruments Inc. (NYSE:TXI) missing the forecast, but the stock was holding steady shortly after the opening. Du Pont and Co. (NYSE:DD) lowered the 2009 outlook and was off about 1% this morning, while Verizon Communications (NYSE:VZ) basically met the forecast, but was down 5%. On the upside, United States Steel Corporation (NYSE:X) released strong results and rose 7%.
Crude oil futures fell about $2 a barrel shortly after the opening, pulled down by worries about growing inventories ahead of the weekly stockpile tally from the American Petroleum Institute this afternoon and the Energy Information Association on Wednesday. Oil stocks were a strong performer Monday despite sloppy action in crude oil, but if crude continues to slide today, it could take some of the wind out of energy and other commodity stocks. Speaking of commodities, copper took a 5% nosedive in overseas trading, which is a troubling sign for the economy as copper is a key ingredient in building.
Individual small caps on the move early today include Volterra Semiconductor Corp. (Nasdaq:VLTR), which rose 21% after reporting earnings. CV Therapeutics Inc. (Nasdaq:CVTX) rose 41% on news that the biotech company will be purchased for $16 a share, or $1 billion, by Japanese firm Astellas Pharma Inc. Parexel International Corp. (Nasdaq:PRXL) rose 16% as the biopharma firm gapped higher following earnings news. On the downside, Whiting Petroleum Corp. (NYSE:WLL) tumbled 15% as the gas company announced plans for a public offering of 8 million shares of common stock.
The chart picture for small caps shows that the market is trapped in a mini-range loosely defined by the inauguration day collapse. A decisive breach in either direction of that range (defined by 466.45 on the upside; 433.65 on the downside) would suggest a target move of some 33 handles. The late rally back above 450 Monday was a positive development; the market needs to hold above that point to bolster any bottoming argument, especially following last Friday’s weekly close, which was the lowest since the November lows.
