Mild dip; lagging big caps with weak financials
Small-cap stocks drifted lower into mid-session, unable to keep pace with mild gains in large-cap indices as smaller banks and financial firms were a drag on the Russell 2000 (NYSE:IWM). At 12:17 p.m. ET, the Russell was down 0.60, or 0.13%, at 449.02.
Losses were limited by a surprisingly stout rise in pending home sales, which were up 6.3%, compared with market expectations for a flat number. Homebuilder stocks seemed to get a lift from the number, with the ISE Homebuilder Index rising 5.2%. Small-cap homebuilder KB Home (NYSE:KBH) was up 6.8%, while Meritage Homes Corp. (NYSE:MTH) was up 10.9%.
The Federal Reserve also announced plans to keep programs on commercial paper operations running for a longer time frame, which was a supportive element for the market. Despite those two upbeat news items, bank stocks were a major drag on the market, with the KBW Banking Index off about 4.1%.
Earnings were a mixed bag today, but expectations are so low on the profit front, that any sign of mild upside surprises is embraced by investors. Drug maker Merck & Co. (NYSE:MRK) beat the estimate and was a big supportive element for the Dow index. Drug stocks in general were outpacing the overall market, with the AMEX Pharmaceuticals Index up 1.6%.
Looking at sector activity, motorcycle manufacturers were a top performer today, but the large automakers were in retreat mode as they release sales numbers today. General Motors Corp. (NYSE:GM) was down 6.1%, while Ford Motor Co. (NYSE:F) was down 3.1%. Personal products companies, steel stocks, coal firms and general merchandise stores were all doing well today. On the downside, the worst performers were regional banks, diverse financial services firms, consumer finance companies, diversified banks, casinos and real estate investment trusts.
Individual small caps attracting unusual volume today include Allied Healthcare International Inc. (Nasdaq:AHCI), which was up 21% on heavy turnover amid an earnings-related boost. PharmaNet Development Group Inc. (Nasdaq:PDGI) soared 244% on news the firm will be acquired by JLL Partners Inc. for $5 a share. Warner Music Group Corp. (NYSE:WMG) was off 6.4% on active volume; the only apparent news was a PR release last night that the firm would enter a global distribution deal with Destiny Media.
On the charting front, the inability to push back above 450 with conviction is a little bit of a worry sign for the Russell so far today. Volume has been light and price ranges restricted, almost like the market is waiting for a breakout development in either direction. Into the afternoon, resistance is at 453.50, then up around 459 and 462. If the market starts to falter, look for support around 445.50, then at 439.50.
