Russell advances as investors shrug off lackluster data and pick up financials
After opening in the red, the Russell 2000 has broken into the green and remains at its highs on the session, as traders shrugged off inflation data, higher crude prices and an increase in jobless claims and bargain hunters scoured for beaten down financials and embraced news that larger loans financed by Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) will be permitted to trade.
At 12:19 p.m. ET, Russell 2000 (NYSE:IWM) had climbed 7.12, or 0.95%, to 754.8, while the Dow surged 125.55, or 1.09%, to 11,658.51.
The Securities Industry and Financial Markets Association said today that larger home loans financed by Freddie and Fannie would now be permitted to trade in the bond market causing both mortgage lenders to jump some 6% midday.
Stocks initially opened lower on worse-than-anticipated inflation data and an uptick in weekly jobless claims.
Ahead of the opening, the Consumer Price Inflation report showed no relief on the price front, clocking in at a hefty 0.8%. The number was substantially higher than the forecast of 0.4% and rose to a whopping 5.7% year-over-year — the highest since January 1991. Even the “core” inflation rate, which excludes food and energy prices, rose faster than projected. Although, excluding food and energy prices isn’t an accurate gauge at the current time, as both have surged in price this year and are the main areas to which consumers are now deploying the majority of their disposable income.
“With core inflation drifting back up to its upper range, and the shorter-term metrics still rising, this report is a little unsettling,” BMO Capital Markets economist Jennifer Lee wrote in a note today. “However, we've likely seen the end of the energy price spike and we do know that consumers have generally stopped spending. This could be the high-water mark for inflation. But we'll need a couple of months of data to confirm that.”
The weekly claims report wasn’t reassuring either, coming in at 450,000, which was down from 460,000 last week, but still above the forecast of 432,000. Looking at a four-week moving average, claims remain on an upward trajectory and at the highest level in six years. Rising inflation coupled with weak labor market stats only serve to solidify the stagflation picture with which the Federal Reserve is grappling.
“… this time of year plays havoc on the claims data, with auto shutdowns, seasonal factors, Midwest flooding and most recently, the extension of the benefits program that was passed in June,” Lee wrote. “[However,] the continuing claims trend is not our friend.”
Crude oil prices have been flickering between the green and red mid-session trading down $0.92 to roughly $115 a barrel. Meanwhile the dollar appreciated against the euro and the yen, as the Eurozone released a negative second-quarter GDP number of minus 0.2%, staving off a rally in the euro.
In other lackluster economic news, the National Association of Realtors reported this morning that the median existing single family home price sunk 7.6%. When is the price free fall likely to end? Former Fed Chair Alan Greenspan says sometime in the first half of 2009, according to the Wall Street Journal.
In corporate news, Wal-Mart posted a 17% increase in its bottom-line for the second-quarter; however, the world’s largest retailer by sales warned that consumer spending could wane in the third quarter as liquidity provided by the government’s stimulus checks dry up. Wal-Mart is seen as a broad measure of the economy, given its breadth. This is important as two-thirds of the economy is fueled by consumer spending.
In broader industry groups…mortgage finance, home construction and airlines are leading the way, while forestry, waste and disposal services and platinum and precious metals remain under pressure midday.
In small cap headlines, LSI Industries’ (Nasdaq:LYTS) stock lost nearly one-third its value this morning, hitting a new 52-week low, after the commercial lighting company announced late Wednesday that it had slashed both its fiscal 2008 and 2009 guidance on account of weak retail sales. As a result of the revised guidance, which also included a likely dividend cut, Robert W. Baird downgraded shares to “underperform” from “neutral.”
Shares of Biotech company Jazz Pharmaceuticals Inc. (Nasaq:JAZZ) are lower after reporting a second-quarter loss that widened from the year-ago period and was greater than the consensus on Wall Street.
On the upside, shares of Heelys Inc. (Nasdaq:HLYS) are up after Skechers USA Inc. (NYSE:SKX) revealed late Wednesday that it had proposed to acquire Heelys for $142.8 million, or $5.25 a share.
