Russell rallies on confidence report, crude slide
Small-cap stocks pushed higher, recouping some of Monday’s big decline amid lower crude prices and positive economic data. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 9.95, or 1.43%, at 706.06.
The consumer confidence report came out at 51.9, which was above the forecast of 50 and which sparked a quick jump in the U.S. dollar while extending the morning rally in equities.
Earlier this morning, the Case-Shiller Home Price Index slipped at a record pace to minus 15.8% in May, which wasn’t a surprise to the market, but is sobering news to home owners who have seen four years of home equity wiped out during the recent downturn in housing.
Crude oil futures were pushing lower this morning, which provided some support to the stock market. The market for black gold was off nearly $2 dollars a barrel into the U.S. stock market open, backing down below $124 amid concerns about the demand picture. OPEC president Chakib Khelil said that current prices for crude were “abnormal” and that prices could fall to $70 to $80 dollars in the long-term picture if the U.S. dollar strengthens and political tensions ease. The greenback was up this morning about 0.6% against both the euro and the yen.
Traders will keep a close watch on the financial arena again today following news overnight that Merrill Lynch (NYSE:MER) announced plans to write-down $5.7 billion in debt and raise $8.5 billion in capital through new stock sales. Shortly after the open, MER shares were down 1%. Also within the financial spectrum, Citigroup (NYSE:C) was the target of negative analyst comments overnight and slumped 2.5% on the open.
Coming into the opening today, stock markets around the world were on tilt, sinking to two-week lows as the MER news sparked renewed fears about the credit crunch. Although European shares bounced off the lows, they were hit hard at times overnight, and Asian markets had a decidedly bearish result, with Japan down 1.4%, Hong Kong down 1.8%, China down 1.8%, Taiwan down 3.0%, Australia down 1.5%, South Korea down 2% and India off 3.8%.
In a research report overnight, Paul Kasriel, chief economist with Northern Trust, said that the debate over whether or not the U.S. economy might be raging on, but when looking at the year-over-year change in operating profits of the S&P 500, the picture is not pretty.
“Are we in a recession or are we not? Profits have declined for three consecutive quarters through the first quarter of this year. Given reports of second-quarter profits to date and estimates of those corporate profits to be reported, it is a good bet that year-over-year profits will be down for four consecutive quarters … the current behavior of corporate profits is consistent with past behavior in periods of recession,” Kasriel said in the report.
Although the MER story might dominate market talk, especially amid a wobbly financial sector, the overall market was on solid footing early today and there were plenty of positive stories to find outside of the economic data. Amgen (Nasdaq:AMGN) shares were up 4% on solid earnings and analyst upgrades, staying in the news for a second day after rising sharply Monday on a successful trial for its osteoporosis drug. Also, Colgate-Palmolive Co. (NYSE:CL) rallied 4% on the opening as second-quarter profits rose. Pharma and consumer goods both had some rosy news to help out investor psychology early today, and even the manufacturing arena pitched in with good news as United States Steel Corp. (NYSE:X) charged 12% on positive earnings news.
Broad market sectors on the rise early today steel, forest products, airlines, paper, auto parts, biotechs and publishing shares. Meanwhile, insurance, oil exploration, diverse financial instruments and gas utilities were attracting sellers.
Individual small caps of note included ILOG S.A. (Nasdaq:ILOG), which was up 32%, gapping higher on news that IBM would buy the firm for some $340 million. Veeco Instruments Inc. (Nasdaq:VECO) was up 18% on solid earnings results and Group 1 Automotive Inc. (NYSE:GPI) was up 16% as the fourth-largest auto retail chain reported dreadful results, but apparently they weren’t as bad as feared. On the downside, The Providence Service Corp. (Nasdaq:PRSC) collapsed 51% as the company lowered guidance. PLX Technology (Nasdaq:PLXT) tumbled 26% on sloppy earnings.
