Firm techs, M&A deals duel weak economic data
Small-cap stocks mounted a valiant comeback push after sinking 1% shortly after the opening, as tech stocks pushed higher, Chicago PMI beat the forecast and merger deals helped offset gloom tied to terrible weekly unemployment claims. At 10:00 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.25, or 0.45%, at 715.62. The tech-laden Nasdaq 100 was up 0.3%.
The weekly claims number came in at 448,000, far beyond the median forecast of 395,000, and a big jump from last week’s 404,000 number. How bad was this number? It was the single largest weekly claims figure in more than five years. Even though this survey was taken after the numbers were collected for Friday’s monthly employment release, it certainly won’t raise investor confidence about the labor market ahead of that release. It also will call into question some of the rise powered by Wednesday’s ADP employment report. The claims numbers were boosted by an emergency unemployment program, but even allowing for some data quirks, it’s a sobering report that does not paint a rosy picture of the labor market right now.
Most people came in to today’s session expecting the GDP report to claim top billing on the data slate, but economic growth was clearly upstaged by the weekly unemployment report. As for GDP, it was also a disappointment, as the headline figure came in at 1.9%, below the forecast of 2.0%. In addition, fourth quarter GDP was revised downward to minus 0.2%, the first decline in quarterly GDP since 2001.
Before the numbers came out, the stock market was higher in overnight trading, but the claims report sparked an abrupt 11-handle slide in S&P 500 futures, and triggered a big slide in the U.S. dollar and in Treasury yields. The yield on the benchmark 10-year note was down more than 2% into the stock market open, which suggested money flow away from equities toward safe-haven products. The dollar was down more than 100 basis points against the euro, slipping 0.7% after the economic data, but trimmed losses to the 0.4% level about 30 minutes after the open.
Although the focal point was on claims this morning, stocks did manage to trim losses when the Chicago Purchasing Managers report came in stronger than expected. The headline figure for the PMI was 50.8, above the 49 forecast and above 50 for the first time since January.
For the first time in awhile, gyrations in crude oil prices were not the focal point for stock market investors. That said, crude was lower this morning, which should help counter some of the worries tied to the soft economic data.
Although the early tumble in equities was clearly driven by the economic data, there were plenty of stocks in the news as some 40 companies in the S&P 500 were slated to release quarterly earnings today. In addition, there was a big acquisition deal in the pharma sector that would have bolstered investor psychology were it not for the disappointing economic reports. That deal involves Bristol-Myers Squibb Co. (NYSE:BMY) offering $60 dollars a share, or $5.2 billion for ImClone Systems Inc. (Nasdaq:IMCL). IMCL shares were up an impressive 38% shortly after the open.
On the big oil front, Exxon Mobil Corp. (NYSE:XOM) slipped about 3% as record profits still were not enough to fire up investors. In overnight trade, European energy firms continued to post huge profits.
Broad market sectors on the decline early today were highlighted by coal, photo products, industrial REITS, real estate management, retail drugs, steel and IT consulting. Bucking the overall downdraft were paper products, tires and rubber, gold, managed health care and airlines.
Small-cap movers of note included Bare Escentuals Inc. (Nasdaq:BARE), which tumbled 29% on disappointing earnings. Harris Stratex Networks Inc. (Nasdaq:HSTX) was off 22% after announcing preliminary results for the year. Valassis Communications (NYSE:VCI) was down 22%, also tied to earnings numbers. On the upside, Cadence Pharmaceuticals (Nasdaq:CADX) soared nearly 80% on news that the FDA has approved pain treatment drugs from the company. Zones Inc. (Nasdaq:ZONS) jumped 50% on news that the company will be acquired by the CEO for $8.65 per share.
Looking at the chart structure, small caps are still hovering below trendline resistance drawn off the June highs. Support today comes in at 707.50 and 701, while initial resistance is near 720, but the more important test is up at 726.
