Russell climbs on GDP report
Small-cap stocks edged slightly higher this morning, bouncing off an overnight dip when this morning’s GDP report came in above expectations, and allowed investors skittish about a potential glut of recession headlines to breathe a sigh of relief. At 9:59 a.m. ET, the Russell 2000 (NYSE:IWM) was up 2.74, or 0.38%, at 721.66.
The Chicago Purchasing Manager’s Survey, out at 9:45 a.m. ET, was slightly above expectations at 48.3 and appeared to have very little impact on equity market trading.
After a recent lull in economic data, the numbers charge kicked into gear this morning, with GDP, ECI, Chicago Purchasing, and even ADP’s employment survey coming out. Although GDP was an important number, it’s just a warm-up for the FOMC announcement this afternoon. And just to prove the old axiom of “no rest for the weary,” the market will have to navigate through ISM Manufacturing numbers, Personal Income data and vehicle sales Thursday, then the big employment release Friday morning.
Let’s begin with the aforementioned GDP release. When it came out slightly better than forecast (up 0.6%), it missed the “official” recession gauge by being in positive territory (if you’re curious, the true official recession definition requires two consecutive negative-growth quarters). It’s worth noting that although GDP averted negative growth territory, we’ve still seen two quarters of extremely sluggish growth and the U.S. economy is clearly struggling as consumers deal with tumbling housing values, rising energy and food costs and a soft labor market.
The bounce off overnight lows began this morning when ADP’s national employment report showed an increase in private sector jobs of 10,000 in April, which lifted small caps to flat ahead of the GDP bounce. Lost in the bright lights of GDP this morning, the Employment Cost Index came in at 0.7%, which was just a tad off the forecast and appeared to have little impact on early trading behavior.
In fact, although the GDP report might be a lightning rod for debate among economists, the real event risk still looms like the proverbial 800-pound gorilla-in-the-room ahead of this afternoon’s 2:15 p.m. FOMC announcement. The Federal Reserve is widely expected to trim 25 bps off the Fed funds rate, but the language accompanying the move will spark a mountain of analysis and could trigger a wave of volatility in a broad range of markets.
It is that fear of volatility that could overshadow action the rest of the session, as the market literally settles into a mode of simply tracking time until the FOMC news comes out.
However, that doesn’t mean that the stock market news will also stop waiting for the Fed news. We are in the heart of quarterly earnings, and reaction to various company results will still drive trading action into the FOMC. So far today, General Motors Corp. (NYSE:GM) reported a smaller-than-expected loss, which lifted the automaker’s share price about 4%. Proctor & Gamble (NYSE:PG) was up 1.8% after solid earnings. Another big name of note this morning was Citibank (NYSE:C), which was down 2.5% shortly after the opening on news that the banking giant will raise $4.5 billion by selling stock (up from $3 billion).
Among small-cap issues, Sucampo Pharmaceuticals (Nasdaq:SCMP) gapped higher and was up 19% on FDA approval for a drug to treat constipation. RadiSys Corp. (Nasdaq:RSYS) jumped about 16% after the opening on earnings and Buffalo Wild Wings (Nasdaq:BWLD) was up almost 18%, gapping higher on solid results. On the downside, Savvis (Nasdaq:SVVS) tumbled 24%, gapping down on sloppy earnings. Anaren Inc. (Nasdaq:ANEN) was off about 16%, pulled down by earnings news.
