Russell hovering near steady on tug of war after data
Small-cap stocks opened lower, pulled down when a fresh batch of economic reports failed to generate any upside surprises. The decline was short-lived, though, as prices pushed slightly into the green within 15 minutes of the opening. A small tug of war between those disappointed by the morning reports and those upbeat by an overnight drop in crude oil and rising retailer shares seemed to be underway. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was up 0.67, or 0.09%, at 739.12.
Economic data on weekly claims and GDP came out before the opening today and while neither report was strikingly bad, they also didn’t carry any bullish news to sustain a mild overnight rise in stocks. The weekly claims report attracted the most attention because the number came in above the forecast at 372,000 versus 370,000 claims, and last week’s figure was revised upward by 3,000 to 368,000. The GDP report hit the median forecast for a rise to 0.9%, but didn’t carry the same kind of power it did last month when a mild rise in GDP was cause for celebration for stocks.
“The bottom line is that economic growth remained very weak at the beginning of the year. These data are ancient history, as Q2 is nearly two-thirds over. Data released so far for April and May suggest that Q2 growth will also be very soft and perhaps even negative. There is still a definite risk for an outright contraction in Q2,” Steven Wood, chief economist with Insight Economics, said in an email.
As for the weekly claims report, Wood said that the four-week moving average is settling in near 370,000, up about 45,000 than the average last year. He said that continuing claims, which are inversely related to job creation, jumped this week and have been rising steadily for almost two years, which suggests that hiring has weakened. The claims data take on a little extra punch this week because next Friday serves up the monthly employment report, and today’s data indicates another weak report with a modest decline in payroll employment and a slight rise in the unemployment rate.
Although the weekly claims report tends to be a minor event on the data horizon and the GDP figures that came out today are dated, the market appears to need a regular fix of bullish surprises at this stage to keep buyers happy. There is an old market saying that “you can starve a bear, but you have to feed a bull” and that could be playing out right now as equities struggle to sustain the rally off the March lows.
Crude oil prices pushed lower overnight, and if they can stay down today then it should act as a buffer on any selling tied to the economic reports, or lingering concerns about consumer spending habits amid $4 pump prices, rising food costs and slumping home values.
The U.S. dollar retained gains on both the euro and yen even after equities sold off following the economic news, which also could underpin the market as the day progresses. With the data out of the way, the market should be able to focus on money flow trends and chart patterns until Federal Reserve Chairman Ben Bernanke speaks later this afternoon. Bernanke is slated to talk about “liquidity provisions” at 2:30 p.m. ET. Although the speech title wouldn’t seem to be of great interest to daily gyrations in stocks, you can never count out a market move surrounding a Fed Chair appearance.
Among broad market sectors this morning, the bears were active in the physical commodity arena, with metals and mining, coal, exploration and production, gold and steel all prominent losers early on. On the plus side, retailers and general merchandisers were in favor. Costco (Nasdaq:COST) and Sears (Nasdaq:SHLD) were both trading moderately higher after the open, following quarterly results last night that were a mixed bag. However, investors seem to see some positive signs from retailer numbers, which suggest that consumers are still able to spend money on other things besides just gas and groceries.
Individual small caps of note this morning included US Airways (NYSE:LCC), which was up about 3.5% on news that merger talks with United Airlines could be getting underway.
Small-cap stocks slated to release earnings later today include Wind River Systems (Nasdaq:WIND), Sigma Designs (Nasdaq:SIGM), Star Maritime Acquisition (CVE:SEA), Monro Muffler Brake (Nasdaq:MNRO), QAD Inc. (Nasdaq:QADI), Agilsys Inc. (Nasdaq:AGYS), Seachange International (Nasdaq:SEAC), Shoe Carnival (Nasdaq:SCVL), Iteris Inc. (AMEX:ITI) and Delia’s Inc. (Nasdaq:DLIA).
