Russell closes up as jobs surprise counters crude oil jump
Small-cap stocks had an up and down session, grappling with the promise of an upbeat private employment survey versus the reality of a sudden updraft in energy prices. In the end, the Russell 2000 (NYSE:IWM) closed up 4.31, or 0.60%, at 718.86.
Small-cap stocks and tech stocks noticeably lagged the Dow and S&P 500, both of which benefited more from a jump in financial and consumer product large caps as well as money moving into big energy names. Exxon Mobil Corp. (NYSE:XOM) rallied 4% as energy markets staged a sharp recovery rally.
Crude oil prices shot some $4 dollars a barrel higher today, reversing course from recent sharp declines. The buying frenzy was set off when the weekly inventory tally showed a surprising drop in gasoline stocks. While a boon to some energy stocks, the jump in crude prices sent a chill through the overall stock market.
On the financial side of things, large caps embraced news that the Federal Reserve would extend access to its primary dealer credit facility window through Jan. 30, which helps to access cheap money needed to combat the credit crunch and raise low-cost capital amid debt write-downs. In addition, President Bush inked the rescue plan for mortgage financing firms, which will support Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), as the two firms own or guarantee nearly 50% of the country’s $12 billion in home mortgage debt. While both FNM and FRE posted solid gains today, they finished well off the morning highs. The SEC also extended a short-selling curb through Aug. 12, so when you combine that with the Fed extending the credit facility and the White House stamping approval on GSE funding measures, it sends a pretty clear message that government officials want to stabilize the financial landscape. Investors could easily see through that message and as a result, several large-cap financial firms were attractive to buyers today. Merrill Lynch (NYSE:MER) was up 2%, Bank of America (NYSE:BAC) up 3% and Citigroup (NYSE:C) up nearly 2%.
The day started off with an unexpected bullish surprise as the ADP Employment Report showed a stunning increase in non-farm payrolls of 9,000 jobs in July, which was well beyond the forecast for a decline of 58,000. With the big Labor Department’s employment survey on tap for Friday morning, the ADP report provided a little pre-release sizzle for the bulls. However, it wasn’t that hard for the number crunchers to poke holes in the ADP survey, noting that it really hasn’t been a very accurate predictor of the Labor Department report for a very long time — and even then only when it’s near the consensus. What’s more, the ADP report reflected a rise in financial sector jobs, which seems a little suspect given the sharp collapse in financial stocks and numerous reports of layoffs within the financial arena in recent weeks.
Still, the market has to trade on something, and just the hint of a potential upside surprise on Friday’s big employment report was enough to trigger a rally in stocks, a surge in the U.S. dollar and a slide in Treasury futures — all of which suggested money flow away from safe-haven instruments and into stocks. Alas, the pattern did not hold up throughout the day, and the greenback eventually gave back most of the morning gains against the euro and yields on the benchmark 10-year noted turned negative after being up over 1.6% early in the day. Looking at Thursday’s agenda, the market will get another chance to react to economic data, with second-quarter advance GDP at 8:30 a.m. ET, along with the employment cost index, then the Chicago Purchasing Manager’s Survey at 9:45 a.m. ET.
Broad market sectors on the rise today were highlighted by personal products, coal, oil exploration and production, fertilizer, oil refining, oil and gas drillers, metals and mining and integrate oil stocks. On the slide today, real estate management stocks took a hit (i.e., CB Richard Ellis Group Inc. was hammered). Other sectors in the red included home entertainment software, automobile manufacturers and casinos.
The biggest moves in small caps were primarily driven by earnings news, with Online Resources Corp. (Nasdaq:ORCC) sinking 28%; LECG Corp. (Nasdaq:XPRT) tumbling 25%; and Ultimate Software Group Inc. (Nasdaq:ULTI) shedding 20% — all on earnings news. On the upside, Barrett Business Services Inc. (Nasdaq:BBSI) was up 35% after announcing positive results Tuesday afternoon. American Commercial Lines Inc. (Nasdaq:ACLI) jumped nearly 26%, also getting a lift from quarterly results.
Despite the modest rise Wednesday and the big advance Tuesday, the chart picture here actually has some mild short-term topping signs that bears are watching ahead of the big jobs report Friday. The market pulled back off a test of trendline resistance drawn off the June highs and the close near opening levels after rejecting intraday highs is a minor immediate topping pattern. While neither formation strikes a dynamic reversal pattern, they simply caution that buying enthusiasm is stalling out in a potentially troubling fashion.
