Russell gyrates on gushing crude, mixed economic reports
It’s been a volatile morning for small caps and the roller coaster ride continues mid-session, as crude surges and investors grapple with conflicting economic reports and question consumer resilience.
On the heels of Thursday’s violent sell off, at 12:46 p.m. ET, the Russell 2000 (NYSE:IWM) has slipped 2.98, or 0.43%, at 695.44., while the Dow is off 77.19, 0.67%, to 11,376.23.
After gushing to a new record high of more than $142 a barrel in pre-market trading, crude oil has deflated somewhat, but still remains in the green mid-session. Today’s assent comes after crude surged nearly 4% on Thursday, as investors found comfort in commodities and away from free-falling equities. The dollar is mixed against the yen and the euro, while gold has climbed $13 midday.
In economic news, consumer confidence fell to a 28-year low, adding to the bleak sentiment on Wall Street. The Michigan sentiment survey slipped to 56.4, slightly below the forecast of 57, as consumers continue to feel discouraged by rising oil and food prices and job losses. The report also said that the velocity of consumer spending is expected to decline through the beginning of 2009.
On a brighter note, the Commerce Department reported this morning that personal income jumped 1.9%, substantially above the projected rise of 0.4%; while spending rose 0.8% in May, also above the forecasted increase of 0.7%. However, when discounting the impact of government issued tax stimulus checks; real income was up only 0.4%.
“Real consumer spending jumped in May, boosted by the tax stimulus checks,” Steven Wood, chief economist with Insight Economics, said in an email. “This will allow consumer spending to rebound and keep Q2 growth positive (albeit weak). After the rebate checks are spent, ongoing job losses will weaken income growth, slow consumer spending and dampen economic growth during the second half of the year. Eventually, weak economic growth will dampen inflation — at least that’s the FOMC’s hope.”
Broader industry groups, gold and silver, crops and coal are among industry groups in the green midday, while audio and video equipment, casinos and computer storage devices are losing ground.
In large-cap headlines, the world's largest insurer, American International Group Inc. (NYSE:AIG), said it will incur as much as $5 billion in losses on liquidation of a dozen insurance units, Bloomberg reported Friday. The projected loss is up from an originally forecasted $500 million and comes after taking a $13 billion loss on subprime-mortgage write downs. Following in step with Goldman Sachs and Bernstein Research, Lehman Brothers is forecasting that Merrill Lynch will take a $5.4 billion write-down during the second quarter on account of the recent credit downgrades of monoline insurers.
In small-cap headlines, Christopher & Banks Corp. (NYSE:CBK) tumbled 21% to a 52-week low midday. The retailer reported late Thursday lower quarterly earnings for the quarter ended in May. Palm, Inc. (Nasdaq:PALM) has dipped 10% mid-session after the mobile phone retailer reported a larger-than-expected quarterly loss on Thursday on account of lower sales of its more expensive Treo product and increased sales of its cheaper Centro phone.
On the upside, AZZ Incorporated (NYSE:AZZ) spiked nearly 24% midday after the electrical equipment and components manufacturer said its fiscal first-quarter earnings profit had more than doubled from the same quarter a year earlier. The Finish Line, Inc. (Nasdaq:FINL) jumped 20% after the retailer reported profitable first-quarter earnings late Thursday.
