Leading indicators report leads small caps higher
The Russell 2000 (NYSE:IWM) is continuing its strides in the green midday after a more favorable-than-anticipated leading indicators report distracted traders from climbing oil prices for most of the session. A slew of news from the tech sector also pushed stocks higher midday.
At 12:39 p.m. ET, the Russell had gained 5.70, or 0.77%, to 746.87, while the Dow leaped 133.61, or 1.03%, to 13120.41.
The Leading Indicators report, which aims to predict turning points in the economy, was up 0.1% for April, slightly better than forecasted, and up from a decline in both March and February.
Investors shrugged off a tapered economic outlook from The National Association of Business Economists, or NABE. The group lowered its forecast for economic growth in 2008 to 1.4% from a previously projected 1.8% in February. Fifty-six percent now think the economy will slide into a recession this year, but that the recession will be short and shallow.
“Expect more of this type of reporting with consumer confidence at extremes and potential for a drop of consumer spending to drag U.S. GDP down,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “It's pretty clear that we've had a wave of optimism stemming from a benign U.S. unemployment number and a slew of hawkish Fed commentary with a small US dollar rally. It's going to be hard to sustain a longer rally in both equities and the U.S. dollar until we can see monthly U.S. housing inventories reduced and we'll get the best indication this Friday with U.S. existing home sales.”
Oil pulled back to the $126 level midday after hovering near new record levels of $127 a barrel earlier in the session. Investors have been focusing on comments from the Organization of Petroleum Exporting Countries' President that it is not likely to increase production this fall and news out on Friday that Saudi Arabia plans to increase oil production to 300,000 barrels a day.
Fresh positive news from the tech sector was a major force in catapulting all broad indices higher. Microsoft and Yahoo! are back in the limelight after the technology juggernaut said over the weekend that it has reinitiated conversation with Yahoo concerning a possible joint venture. More cause for joy came after Goldman Sachs upgraded Amazon.com (Nasdaq:AMZN) overnight. The investment bank is projecting that Amazon will be able to sustain robust revenues longer than its peers. Goldman also upgraded the semiconductor sector, forecasting a second-half improvement in fundamentals.
On the downside, Lowe’s Companies (NYSE:LOW) is lower today after earnings disappointed investors.
Among industry groups, railroads, coal and water transportation are higher, while crops and plastic and rubber are veering lower.
Individual small-caps on the move midday include City Telecom Ltd. (Nasdaq:CTEL), which reported 162% increase in its bottom-line before the opening bell for its fiscal first half. It’s up 27% midday. Ocean Power Technologies, Inc. (Nasdaq:OPTT) is also making strides, gaining 19% mid-session after the renewable energy company said early Monday morning that it is teaming up with Griffin Wave Power Ltd to develop a wave power station off the coast of Western Australia. On the downside, Astro-Med Inc. (Nasdaq:ALOT) and Community Central Bank Corp. (Nasdaq:CCBD) are both down roughly 14% on no apparent fresh news.
