Russell down as dour manufacturing data attract selling
Small-cap stocks resumed the slide into the midday time frame, unable to sustain a morning bounce as recession fears were rekindled by dour manufacturing data. At 11:44 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.66, or 0.73%, at 498.45 at the lowest point since last Friday’s erosion to five-year lows. However, trading remains volatile, with the market popping back off a 3% mid-morning slide fairly quickly.
In what has become a familiar refrain lately, the Russell started out the day in positive territory and rallied to a gain of 3.2% shortly after the opening as employment and inflation indicators came in tame. However, when the industrial production report showed manufacturing activity posted the largest decline in nearly 34 years the market started to fray at the edges, but was still in positive territory. However, even if investors were willing to shrug off the output data due to quirks like Hurricane Gustav and a strike at aircraft maker Boeing, the 10:00 a.m. ET release of the Philly Fed survey (which is an October number) was the lowest figure in some 18 years and investors gave up the fight.
The market continues to fret about the possibility for a deep recession in the United States and a slowdown around the world, which would damage profits for both domestic and export-related businesses. And even though today’s unemployment claims report was not as bad as feared (461,000 versus the 470,000 forecast), it is still a historically large number of people filing for unemployment insurance and the number of people on the unemployment line only stands to get worse in coming months. While analysts argue that employment will lag the recovery in stocks and the overall economy, it’s still uncomfortable to get in front of that trend at this stage of the market dynamic.
Looking at sector action today, the best performing areas were coal, education services, agriculture products, footwear companies, food retail firms, airlines, gas utilities and steel stocks. On the downside, life health insurers were getting nailed. Forest products, paper stocks, gold, automobile manufacturers, asset management firms, property and casualty insurers were taking a hit, as were home entertainment software companies and Internet retail stocks.
Individual small caps on the decline today included Amcore Financial Inc. (Nasdaq:AMFI), which was off about 23% after reporting a wider-than-expected loss for the quarter. Silver Standard Resources Inc. (Nasdaq:SSRI) was off about 17%, sinking to fresh 52-week lows. Badger Meter Inc. (NYSE:BMI) was down 27% after reporting earnings and Winnebago Industries Inc. (NYSE: WGO) was off about 24%, also on disappointing earnings. On the upside, Jackson Hewitt Tax Service Inc. (NYSE:JTX) rallied 15% in a big bounce after making new lows Wednesday and Aladdin Knowledge Systems Ltd. (Nasdaq:ALDN) was up 20%, gapping higher from an earnings-related lift.
Looking at the chart picture for the Russell 2000, today’s initial low near 485 fits with modest short-term support. A rally from here back into positive territory would help the bottoming argument, and the fact that small-caps are outperforming large caps (even on the down move) is a mildly supportive element in play. If the market slips through 485, then a retest of the move lows down at 468 is likely. However, if the Russell can mount an afternoon upside charge today, then resistance will be at 514, then at 525.
