Russell rallies as market focuses on the positive
After pushing higher on the opening on this notoriously superstitious day of bad luck, small-cap stocks threw caution to the wind and continued trading in the green midday, as investors focused on positive data within the CPI report and oil pulled back.
At 1:31 p.m. ET, the Russell 2000 (NYSE:IWM) was up 7.6, or 1.06%, at 727.44.
The Labor Department reported this morning that the consumer price index clocked in at 0.6%, slightly above the forecast. CPI on a year-over-year basis was up 4.2%, which was above the median estimate of 3.9%. However, the “core” rate, which excludes food and energy prices, was in line with expectations and was the portion of the report the market chose to focus on.
“The CPI number didn’t tell us anything we didn’t already know today,” said Andy Busch, foreign exchange strategist for BMO Capital Markets. “When we got the actual number, [people thought] maybe we should take some profits on this. The core number came out pretty tame. Food and energy actually act as a depressant on the other components of CPI because you take away discretionary spending to pay for what would be nondiscretionary payments, and clearly there’s no price pressure on other components of the CPI.”
Busch also says today’s economic report validates the Fed’s stance. “We’ve had the Fed bang the drum about inflation for over two weeks now … The Fed’s looking beyond the data right now and they’re going to be raising rates,” he said.
In other economic news, the Michigan sentiment survey came in below expectations, slipping to a fresh 28-year low on inflation and rising unemployment concerns.
“It’s extremely negative, but I think there isn’t a close linkage between consumer sentiment and consumer spending — maybe 20%,” Busch said. “I would caution people [against thinking] that they are closely tied. I think they’re more of a coincident indicator—the reason being that people feel bad and stop spending because they’re already experiencing problems with energy and food. It’s already taken away their ability to spend; it’s already cooked in the books. Also, looking back to 2001, after 9/11, consumer sentiment fell off the planet and yet consumer spending picked up.”
Also out this morning, the market digested fresh dour news on the housing front as foreclosures in May were up 48% from last year, and up 7% from April, according to RealtyTrac’s U.S. Foreclosure Market Report.
On a positive note, oil pulled back $2 a barrel midday, pushing the market higher. The dollar also rallied against the euro falling to below $1.54.
Industry groups gaining the most ground mid-session include iron and steel, retail apparel and metal mining, while beverages and regional banks are among the few slipping in midday action.
In small-cap headlines, shares of Chindex International Inc. (Nasdaq:CHDX) are up 12% mid-session despite the health-care services provider’s report Thursday that it clocked a fiscal fourth-quarter loss compared with a profit in the year-ago quarter on higher taxes and a foreign exchange adjustment.
US Airways (NYSE:LCC) is up 12% midday after announcing plans to slash 1,700 jobs, cut capacity and add charges. Shares of Smith & Wesson Holding Corp. (Nasdaq:SWHC) rallied 7% after the handgun manufacturer reported posted fiscal fourth-quarter earnings after Thursday’s close that slid from the year-ago period, but still managed to beat the Street.
