Largest small-cap weekly decline since February
Barring a last minute stunner Monday, small-cap stocks appear set to finish the first half of 2008 with a whimper as the Russell 2000 (NYSE:IWM) closed out this week’s trading at the lowest level since early April while notching the largest one-week point decline since February. For the day, the Russell dipped 0.28, or 0.04%, to 698.14, walking a tightrope between rising crude oil and safe-haven money flows away from stocks versus oversold conditions and a rise in personal income data.
And it even took a pair of rose-colored glasses to see the good news on today’s personal income report, which clearly was tainted by stimulus checks reaching consumer wallets. The headline figure on personal income was up 1.9%, but after adjustments for the stimulus payout, the real figure was much less enticing.
“Perusing some of the detail, households seemed to want to escape from reality in May by stepping up their purchases of alcoholic beverages to consume in the privacy of their own (or bank-owned) homes (+1.29%), by going to the movies (+24.9%), by investing their tax rebates at blackjack tables (+2.3%) or simply boarding an airplane to get out of town (+2.7%),” Paul Kasriel, chief economist with Northern Trust, said in an email. “Come the third quarter, when the fiscal stimulus has dissipated, so will personal income and consumer spending increases,” he said.
Consumer sentiment as told through the
Although this week’s economic data provided fodder for the troubling state of affairs in equities, next week’s calendar is jam-packed with more potential data pitfalls, capped off by Thursday’s big monthly employment report. With the market closed Friday for the Independence Day holiday, next week’s trading could be quite volatile as investors digest data on manufacturing, car sales, and employment.
Even though the data makes for great theorizing, a major issue confronting stock market players right now is the lack of corporate profits. And even the companies that are reporting decent profits are presenting somber forward guidance amid the sluggish economic environment and rising input costs. What’s more, the credit crunch is still munching away on investor fear toward banks and other financial institutions.
“Stress levels in the financial markets are rising anew, and financial conditions are now tighter than at the time of the Bear Stearns/JP Morgan Chase deal,” Goldman Sachs economists wrote in their weekly analysis report after today’s close. “Consumer confidence measures continue to plumb new lows; for the first time in at least 40 years, a plurality of households now expect their income to contract. (Finally) the factory sector may be on the verge of a significant contraction,” Goldman’s report said.
Given the market’s preoccupation with soaring energy prices, perhaps it’s no surprise to see the stock market faltering this week when crude oil prices notched record intraday and closing highs, climbing to nearly $143 dollars a barrel Friday before retreating back toward the $140 level by the close. The rally in crude oil prices has been accompanied by a sinking U.S. dollar, which is now back on the doorstep of all-time lows against the euro and lost 0.6% Friday against the yen.
In fact, the entire commodity story is likely troubling for both the overall stock market and for consumers alike. The Commodity Research Bureau Index, which tracks price movement in 19 various commodities, stormed to new record highs this week, and so did the iPath GSCI Total Return Index, which also tracks commodities and is weighted heavily toward energy. Massive flooding in the heartland has even driven corn prices to $8.00 dollars a bushel, or about double prices from a year ago.
Looking at broad market sectors today, casinos crapped out, sinking more than 8%. Specialized finance shares were unwanted, and homebuilding, leisure product and household product stocks also took a sizable slide. On the upside, coal stocks were the best performers, following by automotive retailers, gas utilities and insurance brokers. For the month, casinos are off some 30%, automobile manufacturers down almost 29% (with General Motors Corp. (NYSE:GM) at 53-year lows), regional banks down 26%, thrifts and mortgage financial stocks off 25% and diverse financial services down 22%. Meanwhile, the top performing sector in June has been coal, with a 14% gain. After that, gold shares are up 10% and then gas utilities up 8%...it’s clearly been easier to find shorts than longs during this June swoon.
As for today’s big market movers on the small-cap side of things, the TEL Offshore Trust (Nasdaq:TELOZ) tumbled 26% on unusually brisk volume without any apparent news to power the move. The stock has been on fire this year, tripling in value since the January lows. Biosante Pharmaceuticals (Nasdaq:BPAX) tumbled 20% and SunOpta Inc. (Nasdaq:STKL) shed 20%, gapping lower and trading on heavy volume as the organic food distributor shook up the leadership ranks.
On the upside, Andersons Inc. (Nasdaq:ANDE) shot up 26% as the agriculture firm raised its 2008 profit outlook. ANDE gapped higher on the opening and extended the rally on extremely heavy volume. Yet another stock generating unusually heavy turnover was Protection One Inc. (Nasdaq:PONE), which jumped 14% and posted the strongest close above the 20-week moving average since March 2007.
Looking at the chart picture in small caps, the Russell 2000 remains in a top-heavy structure, but daily momentum readings are oversold, and the market did notch a solid recovery move off the lows Friday. The big downside target off this week’s range breakdown is at 690, and the market rallied nicely when it got within two handles of that figure Friday. If things deteriorate next week below 690, then it opens a real discussion on whether or not the rally off the March lows was corrective in nature and not bottom forming. That argument already was asked – and answered – this week in the Dow, which is now at the lowest levels since 2006 and is sitting on the textbook definition of a bear market, down 20% for the year.
