Russell rally fueled by crude decline
Small-cap stocks pushed higher Thursday, buoyed by a slide in crude oil prices that supported consumer-oriented stocks and energy-sensitive sectors such as manufacturing and airlines. The Russell 2000 (NYSE:IWM) closed up 7.12, or 0.97%, at 737.83.
When crude oil prices slipped back below $134 dollars a barrel, stock market investors perked up, Scott Fullman, market strategist with WJB Capital said in an email interview. By the U.S. close, energy futures had tumbled down to below $132 dollars in response to news that China would hike gasoline and diesel prices by as much as 18%, which could slash demand for energy products in a key growth region.
In addition to the energy lift, Fullman noted that implied volatility levels have contracted on an intraday basis as the expiration of futures and options approach. The market is moving toward “quadruple witching” expirations, which could trigger heightened volatility into things. The concentrated strikes are primarily above current market levels, which could act as an upside magnet on prices into Friday’s session.
Today’s recovery in stock market indices has been impressive given negative economic news earlier this morning, and a steep opening slide in health-care providers. The Philly Fed survey came out at 10:00 a.m. ET and the headline figure was at minus 17.1, well below the forecast for negative 10.0. When the number first came out, stock index products slipped into negative territory, but the reversal in crude oil prices brought the buyers back into the fray.
Health insurers staged a decent bounce off the morning lows, but Coventry Health Care Inc. (NYSE:CVH) still absorbed a 20% decline and the Morgan Stanley Healthcare Payors Index shed about 7% as the market cooled on the outlook for health-care firms. UnitedHealth Group Inc. (NYSE:UNH) slipped about 6% and WellPoint Inc. (NYSE:WLP) lost about 4%.
A primary beneficiary of today’s slide in crude oil prices were airline carriers, which have been battered for months by rising jet fuel costs and pinched margins. The AMEX Airline Index shot up 8.5%, but is still down about 50% from the February highs. Small-cap carrier US Airways (NYSE:LCC) rallied nearly 13% and large-cap airline UAL Corp. (Nasdaq:UAUA) was up about 14%.
As one might expect, airlines were the top-performing broad market sector today. Other sectors attracting buying interest included semiconductors, railroads IT consultants, homebuilders and steel stocks. Conversely, managed health-care shares were the biggest sector losers. Also on the downside, coal, diverse financial services and anything related to oil were lower.
Despite the overall market recovery, financial stocks still remain on the defensive despite two days of getting battered. Large caps under water today included Citigroup (NYSE:C) and Bank of America (NYSE:BAC), both off about 2.3% and Lehman Bros. (NYSE:LEH), down about 2.5%. On the upside, regional banks finally removed themselves from the bottom of the performance heap after getting killed the first part of this week.
Among individual small caps, Casella Waste Systems Inc. (Nasdaq:CWST) rallied about 13% after projecting 2009 guidance above expectations. Also, Eurand NV (Nasdaq:EURX) rose some 12% on news that the FDA issued an approval letter for the firm’s pancreas drug. Also, Array BioPharma Inc. (Nasdaq:ARRY) climbed about 11% without any apparent fresh news.
Small caps bucking the overall uptrend today were highlighted by BluePhoenix Solutions (Nasdaq:BPHX), which gapped lower on unusually brisk volume and shed some 32% amid analyst downgrades. Synthesis Energy Systems (Nasdaq:SYMX) slumped about 12%.
From a charting standpoint, the market remains trapped in a range between 762 and 717, and shows no immediate signs of breaking free from that zone. Although the recovery rally Thursday was a welcome sign into Friday’s expirations, the bounce did very little to influence larger chart patterns.
