Mild drop on weak profits; crude at four-year lows
Small-cap stocks were slightly lower early this morning, pulled down by a rash of weak profit reports and gloomy outlooks amid ongoing concerns about the economic environment. Energy stocks were a soft spot for the market as crude oil tumbled to fresh four-year lows. At 10:05 a.m. ET, the Russell 2000 (NYSE:IWM) was down 1.24, or 0.20%, at 485.35.
The Philly Fed report came in at 39.3, which was up from last month’s reading, but still slightly below the consensus forecast. The leading indicators report was down 0.4%, which was in line with projections.
Earlier this morning ahead of the opening, the weekly claims report came in at 554,000, which was in line with market projections, but still awful historically. The four-week moving average on claims rose to 543,750, which is the highest level since December 1982. Continuing claims edged down 4.384 million, down from 4.431, which is a mildly positive development – but again, these numbers are still among the highest in a generation and the overall employment picture in the United States is expected to get worse over the next couple of months.
Bullish traders will say that all the dreadful economic news is a known factor and is already priced into the market. What’s more, most of the profit news has been awful as well, but is also subject to the “been there, done that” market response. This morning, analysts at UBS lowered their forecast for 2009 profit estimates for the S&P 500.
As for today’s company news, small-cap video game maker Take Two Interactive Software Inc. (Nasdaq:TTWO) missed the profit forecast and was down 18% early on today. Package delivery firm FedEx Corp. (NYSE:FDX) met the current forecast, but warned that 2009 looked quite weak and said they would cut costs to prepare. FDX shares were up 0.4%.
The energy market was on the mend overnight, but started sinking fast into the stock market open. Crude oil prices tumbled to four-year lows Wednesday and extended that slide today, off some $1.50 a barrel this morning, which could keep an anchor on energy shares. Energy stocks were down some 1.6% this morning, acting as a drag on the overall market. The dollar also rallied into positive territory against the euro after taking a hit overnight, which could weigh on various commodity markets.
There was talk overnight that the Obama stimulus package could be as much as $850 billion, which provided a lift to the stock market heading into this morning’s action. Speaking of aid packages, we are now deep into the week and still there has been a lot of talk about how to help out automakers, but no real action yet, even though we started the week looking for a White House package by Tuesday or Wednesday at the latest. The Wall Street Journal reported that General Motors Corp. (NYSE:GM) and Chrysler were back in merger talks, but GM officials denied that was the case. Shortly after the open, GM was down 1.6%, while Ford Motor Co. (NYSE:F) was down 0.6%
Individual small caps making an early move this morning include Apogee Enterprises Inc. (Nasdaq:APOG), which rose 12% as the glass maker received an earnings-related lift. TTM Tech Inc. (Nasdaq:TTMI), rose 8% as the circuit board manufacturer continues to climb off the November lows. BioSpecifics Technologies Corp. (OBB:BSTC) jumped 41% as the biopharma firm announced a licensing agreement with Pfizer Inc. (NYSE:PFE) to market a drug for the treatment of Dupuytren’s disease. On the downside, Tennant Co. (NYSE:TNC) slumped 19% as the safety solutions firm announced restructuring plans amid slower sales. Scholastic Corp. (Nasdaq:SCHL) gapped lower and shed 13% as the children’s educational publishing firm missed the profit forecast.
From a technical analysis perspective, the market is once again back on a test of 491, which turned back small caps on two previous occasions (three, if you include Wednesday’s pullback). As the day progresses, resistance for the Russell above 491 comes in at 504, then up at 514.50. On the downside, support is at 473 and then at 461. It’s worth noting that volatility could ramp up this afternoon and then into Friday as the market deals with “quadruple witching” expirations of options, single stock future and index products.
