Russell near flat despite soft economic data
Small-cap stocks pushed lower on the opening, pressured by troubling economic data that raised concerns about both inflation and employment. That said, the market was hanging in relatively well given the sobering news, with the Russell 2000 (NYSE:IWM) climbing into the green near 10:00 a.m. ET. At 10:03 a.m. ET, Russell was up 0.16, or 0.02%, at 747.86.
Ahead of the opening, the Consumer Price Inflation report showed no relief on the price front, with the headline figure climbing to 0.8%, which was way above the forecast of 0.4%. What’s more, the year-over-year figure rose to 5.7%, the highest mark since January 1991. Even the so-called “core” inflation rate, which excludes food and energy prices, rose faster than the projection. With gasoline pump prices pushing north of $4 dollars a gallon this summer and food prices on the rise, excluding food and energy doesn’t make that much sense anyhow.
The weekly claims report also carried a sobering message this morning, as unemployment claims came in at 450,000, which was down from 460,000 last week, but still above the forecast of 432,000. When looking at a four-week moving average, claims remain on an upward trajectory and at the highest level in six years. The combination of rising inflation and weak labor markets is a very difficult position for Federal Reserve policy makers to navigate.
“Headline consumer inflation spurted again in July because of another sharp jump in energy costs and a large increase in food costs,” Steven Wood, chief economist with Insight Economics, said in an email. “However, lower oil prices should reduce energy costs next month. At the present time the Fed is caught between a rock and a hard place with renewed financial turmoil, a deteriorating economy, and climbing inflation. The Federal Reserve has been counting on energy prices to flatten out and weak economic activity over the next several quarters to cap both overall and core inflation. So far, no joy,” Wood said.
As the market prices in the bad news on the economic front, there are some bright spots to keep an eye on this morning, with automobile manufacturers, thrifts, homebuilders, department stores and airlines all on the upside. The S&P Retail Index took a hit Wednesday, but was on better footing this morning, even though retail leader Wal-Mart Stores Inc. (NYSE:WMT) was unable to sustain overnight gains following decent earnings. WMT shares were down 1% shortly after the open. After a couple of difficult sessions, financial stocks appear to be in better shape this morning, with regional banks and diversified banks joining mortgage finance firms in the green.
Individual small-caps of note this morning included Power Medical Interventions Inc. (Nasdaq:PMII), which collapsed 45% following dismal quarterly results. LSI Industries Inc. (Nasdaq:LYTS) tumbled 31% after updating its outlook. Jazz Pharmaceuticals (Nasdaq:JAZZ) slumped 10% after reporting earnings. On the upside, Heelys Inc. (Nasdaq:HLYS) rallied 10% on news that Skechers USA Inc. (NYSE:SKX) tendered a bid to buy the firm. North American Energy Partners Inc. (NYSE:NOA) was up 11%, boosted by earnings news.
Crude oil prices slipped into the red, pulled down by concerns that soft economic conditions in the U.S. could further crimp demand. In addition, the U.S. dollar was surprisingly firm against the euro despite the inflation and employment data, which pulled down energy prices.
As the day progresses, support in the Russell comes in at 742, then at 734. On the upside, there is a double top on intraday charts from Wednesday’s action at 750. If that point is taken out, then there is resistance at 758 and 763. Any push into positive territory today given another day of troubling news would be a fascinating show of support from the small-cap arena.
