Mild opening gain seen as positive earnings offset CPI
Small-cap stocks are expected to open slightly higher as positive news from large-cap banks and pharma companies are expected to sweep into the small-cap arena and help offset ongoing concerns about the macro-economic environment after troubling inflation data this morning. The Russell 2000 (NYSE:IWM) was up about 0.1% heading toward the open, which would suggest an open near 663.
This morning’s Consumer Price Index report came in at plus 1.1%, the largest advance in 26 years and the year-over-year increase was at 5%, the largest since 1991. Analysts had forecast a CPI headline figure at 0.7%, so the inflation report was clearly a bad number for the market, but it’s not like higher prices right now are a surprise, and the market was able to push Tuesday’s PPI number into the background relatively quickly, so it will be interesting to see if traders will decide to focus elsewhere as the day progresses.
The market will now await testimony from Federal Reserve Chairman Ben Bernanke at 10:00 a.m. ET. During Tuesday’s testimony, the Fed leader painted a somber picture on the inflation and growth fronts, which deepened a morning slide in equities that was eventually recovered amid a steep decline in energy markets.
Speaking of energy, crude oil futures were on the slide again overnight, sinking about $1.50 dollars a barrel toward $137.50 as the market starts to fret about how the soft economy in the U.S. could crimp demand.
Large caps in the news this morning include Wells Fargo & Co. (NYSE:WFC). When the bank posted quarterly results and announced a 10% increase in dividends, S&P 500 futures were down about six handles; after the WFC news, SPX futures jumped into positive territory. Also, Abbott Labs (NYSE:ABT) was up about 1.8% in after-hours trading as the firm raised quarterly guidance and beat the earnings forecast. In general, pharma companies have been coming in with solid results this season and the market saw money move into that sector Tuesday despite uneven trading action in the overall market.
Semiconductor shares should get a lift today following solid earnings news from Intel Corp. (Nasdaq:INTC), which was up 4% in overnight trading, and also Altera Corp. (Nasdaq:ALTR), which was up 1%. Also, a big M&A deal involving Altera Corp. being acquired by Cleveland-Cliffs Inc. (NYSE:CLF) could bolster bullish psychology. ALTR shares were up some 28% in after-hours trading on the deal.
On the chart front, it will be important for the Russell to generate upside follow through today to help validate a bullish doji pattern on daily candlestick charts from Tuesday’s advance. As for today’s action, look for support at 660 and 655, while resistance comes in at 669, 674 and 678.50, but the key test on any rally extension this week is up closer to 684 and 690.
