Record continuing claims, weak profits hurt small caps
Small-cap stocks pushed lower to start Thursday’s session, as the latest figures on weekly claims showed record large numbers of U.S. citizens are on unemployment insurance. In addition, earnings news and monthly retailer sales figures are sloppy as expected, adding to the bearish tone. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was down 4.93, or 1.10%, at 443.55. Although small caps remain above the January lows, the Dow today slipped to the lowest point since the Nov. 21 bottom was carved out.
The weekly claims report rose to a new cycle high, as a sobering number of Americans were forced to file for unemployment benefits last week. The headline figure on claims came out at 626,000, which was way ahead of the projection of 592,000. That figure marked the highest level on weekly claims since 1982. Even more sobering is that the number of people forced to remain on the unemployment rolls climbed to 4.78 million, which is the largest number on record. Although these figures won’t make it into Friday’s big monthly Labor Department jobs report for January, it’s still a troubling sign.
At the same time that the weekly claims report came out, the latest reading on productivity was released, and the number topped the forecast by quite a bit, with productivity coming in at 3.2%, well above the 1.4% projection. The factory orders report at 10:00 a.m. ET came in at minus 3.9% and included a hefty downward revision to last month’s report.
Coming into today’s action, stock markets in Europe and Asia were seeing a mild retreat, with European shares pulled down by losses for insurance companies and consumer products firms. Swiss Re, the world’s second-largest insurer saw double-digit losses in European trading and Warren Buffett invested about $2.6 billion in the firm. The Bank of England trimmed another 50 basis points off their benchmark interest rate, bringing rates down to 1%, the lowest level in more than 300 years for the bank. Meanwhile, the European Central Bank opted to leave their benchmark rates unchanged at 2%, which was basically telegraphed by ECB President Trichet in recent days.
Over in Asia, pharmaceutical and airline stocks were a clear drag on the market, with Australia’s No. 1 carrier Quantas sinking some 18% as the firm sold stock at a discount to raise capital.
Market watchers will continue to get a read on monthly same-store sales figures. This morning, discount retail giant Wal-Mart Stores Inc. (NYSE:WMT) beat the forecast as the firm appears to be picking up store traffic from pinched consumers “trading down” from higher priced department stores. WMT shares were up 2.5% shortly after the open. That trading down concept would conceivably hurt the luxury and high-end retailers and clearly traffic and sales numbers are off for those type of outfits – not exactly a shock in the midst of the worst recession since the Great Depression.
On the earnings front today, Cisco Systems Inc. (Nasdaq:CSCO) said revenue would fall short of expectations, which sparked a pre-market slide in tech stocks. However, the internet networker was actually holding near steady shortly after the open, which trimmed declines in the Nasdaq 100. Elsewhere on the earnings front, Prudential Financial Inc. (NYSE:PRU) and home builder Pulte Homes (NYSE:PHM) also missed the forecast. However, Visa Inc. (NYSE:V) beat the earnings forecast and was up 9.3% after the open.
Individual small caps making a move early today included Knoll Inc. (NYSE:KNL), which jumped 20% as the furniture maker reported solid earnings. RightNow Technologies Inc. (Nasdaq:RNOW) gapped higher and gained 14% as the marketing firm also received an earnings push. On the downside, BPZ Resources Inc. (AMEX:BPZ) tumbled 23% as the oil and gas company provided updates on reserves and operations. Corporate Executive Board Co. (Nasdaq:EXBD) fell 17% as the executive networking firm announced earnings after the close Wednesday. Life Time Fitness Inc. (NYSE:LTM) slumped 13% as the operator of workout facilities released preliminary earnings news.
From a charting perspective, the Russell slipped through the first support zone along 445.50 and now eyes support at 440.50; from there, support is at 434.50. The structure is top-heavy within a broad consolidation range and persistent action below the 450 swing line would be a troubling sign that could be a precursor to a hard retest of the November lows. If the market stabilizes later today and tries to rally, then resistance comes in at 452.50.
