Inflation, jobs throw bearish jabs at small caps
Small-cap stocks are expected to open lower, pulled down by a bearish one-two punch of economic data this morning, which will heighten concerns about inflation and the labor market. The Russell 2000 (NYSE:IWM) is expected to open about 0.2% lower, which would translate to an opening near 745.60.
On the inflation front, this morning’s Consumer Price Index report came in way above forecast, with the headline print at plus 0.8%, compared with the consensus for a rise of 0.4%. The year-over-year rise in consumer prices was at 5.7%, which was the largest in 17 years.
At the same time that traders and analysts were fretting over the inflation picture, the latest weekly unemployment claims report offered no relief on the immediate economic horizon, as claims dipped to 450,000 from last week’s upwardly revised 460,000, but were still well above the forecast of 432,000. Continuous claims rose to 3.417 million, way above the projection of 3.300 million and the four-week moving average for claims is at the highest level in more than six years.
The immediate market response to the sobering economic data was that S&P 500 futures tumbled six handles, retreating from positive territory as the numbers overwhelmed overnight glee about solid earnings results from the world’s largest retailer Wal-Mart Stores Inc. (NYSE:WMT). Also, Treasury futures slipped because of the inflation scare on CPI, the dollar attracted some selling interest and gold prices climbed. Crude oil prices also rose from steady levels to gain about $0.30 a barrel shortly after the economic reports were released.
The chart picture in the Russell sports a double top on intraday studies at 750, and that zone remains resistance for today’s action. With the market expected to open lower, the focus will be on support at 742, then at 734. Any breach of the previous breakout zone at 726 would be a big warning signal, but for now, the pullback off Monday’s peak is consistent with a correction — not a top.
