Russell pushes higher on earnings, M&A deal
Small-cap stocks pushed slightly higher on the open, lifted by positive earnings news on the banking front and by fresh M&A developments. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 2.59, or 0.37% at 695.68.
The leading indicators report, which came out at 10:00 a.m. ET, was in line with the forecast for a dip of 0.1% and had almost no immediate impact on the market. Overall, this is a very light week for economic data, but it will be a huge week for earnings results.
In what has become an ongoing trend, a major U.S. bank has posted better-than-expected earnings. This time around, the good news was from Bank of America (NYSE:BAC), as the nation’s largest retail bank topped the Street earnings forecast and jumped 7% shortly after the open. The earnings surprise follows on the heels of better-than-expected results last week from Wells Fargo & Co (NYSE:WFC), JP Morgan (NYSE:JPM) and Citigroup (NYSE:C).
Within the financial spectrum, government-sponsored mortgage lenders Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) were solidly higher this morning in the wake of weekend comments from Treasury Secretary Henry Paulson, who said that he expects Congress to quickly pass his bail-out program for GSEs. Paulson also said that 99% of the nation’s banks were healthy, but that the U.S. economy could be in a period of slow growth for “a while.”
Traders will keep a close watch on crude oil price movement this morning as the market for black gold was on the rise into the stock market opening, up about $1.50 dollars a barrel near $130.50. The energy market was walking a tightrope between soft demand concerns vs. holding a weather premium as Tropical Storm Dolly moves into the Gulf of Mexico.
On the M&A front, Genentech (NYSE:DNA) shot some 13% higher early today on news that Swiss firm Roche Holdings made an offer to buy all outstanding shares in DNA for more than $43 billion.
Broad market sectors on the rise this morning were paced once again by thrifts and mortgage finance firms. Also, multiline insurance companies were higher, as were other diverse financial services shares. Regional banks, biotechs and diversified banks were also trending upward. On the downside, footwear, specialized REITS, pharmaceuticals and air freight couriers were attracting sellers.
Individual small-caps of note included ArthroCare Corp. (Nasdaq:ARTC), which gapped lower and tumbled some 22% as the firm announced they would restate financial statements. Exterran Partners LP (Nasdaq:EXLP) was down about 9%, sinking to fresh 52-week lows. On the upside, Blue Coat Systems Inc. (Nasdaq:BCSI) was up 11%, trying to sustain a bounce off 52-week lows that was forged last week. BTU International (Nasdaq:BTUI) was up 11%, gapping higher.
Looking at the chart picture, last week’s dramatic reversal hinted at a potential bottom in small-caps, but that scenario needs further upside confirmation this week. Initial resistance this morning in the Russell 2000 comes in at 697, then at 707.50. On the downside, key short-term support is at 684.
