Russell rises despite surging oil
After a brief slump in morning trading spurred by the surge in crude prices, small caps have steadily risen during the Monday afternoon session. At 1:52 p.m. ET, the Russell 2000 (NYSE:IWM) was up 5.28, or 0.72%, at 738.89.
Crude oil have skyrocketed to more than $137 a barrel in afternoon trading. Investors reacted nonchalantly to Saudi Arabia’s announcement that it would increase production. In other commodity trading, the U.S. dollar is down against both the yen and the euro.
“Saudi Arabia has offered to increase oil production, as the world’s biggest oil exporter moves to address global fears that prices are spiraling out of control, according to the London Times. They said they would increase production by 200,000 barrels a day next month and this comes on top of a 300,000 increase in June,” Andy Busch, foreign exchange strategist for BMO Capital Markets, wrote in an email. “Together, the increases would take production above 10 million barrels a day in Saudi Arabia. Then, CNBC reports that they will have difficulty meeting this new level and a North Sea drill rig fire causes oil to go up.”
Earlier this morning, the NY Manufacturing Survey came in below expectations, which put the market on the defensive before the crude oil price spike delivered a knockout punch for stocks. The manufacturing report came out at minus 8.68 for June, well below the median forecast for a dip of 2, and eroding from last month’s figure of minus 3.23.
Lehman Bros. (NYSE:LEH) kept the financial sector on investors’ minds after announcing a $2.8 billion loss for the second quarter. Lehman’s early Monday announcement met its pre-announcement issued last week. In other large-cap financial news, American International Group (NYSE:AIG) was down some 1%, after announcing that the CEO will be replaced. Also on the large-cap front, General Electric (NYSE:GE) shares were off 0.5% after being downgraded overnight by analysts at JP Morgan.
The Federal Reserve has no plans to raise rates, columnist Robert Novak wrote in today’s Washington Post. Federal Reserve Chairman Ben Bernanke is more concerned with low growth than inflation problems, Novak wrote.
“This would run counter to the recent spate of Fed commentary including Bernanke's and calls into question whether the recent spike in the yield of the U.S. two-year note is warranted,” Busch said. “Regardless, if Novak's article is correct, I think we'll see some buying of U.S. Treasuries on the back of it if for no other reason than shorts taking some profit.”
Bernanke is slated to speak at a Senate Finance Committee health summit this afternoon. Richmond Fed President Jeffrey Lacker, who does not vote on interest rate decisions, said in an afternoon speech that the housing slump should have been foreseen but said the chance of a severe economic downturn has dropped. Lacker also said that the risk of inflation is unreasonably high.
Broad market sectors on the decline this afternoon include non-cyclical consumer crops, non-alcoholic beverages, office supplies, food processing and waste management services. On the upside, catalog and mail order retailers, gold and silver, water transportation, construction and agricultural machinery and consumer financial services were attracting buyers.
Small-cap stocks on the move this afternoon include Chiquita Brands International, Inc. (NYSE:CQB), which is plunging some 28% after the banana distributor and marketer said it will record a “significant” third-quarter loss. Wall Street expected the firm to break even during the third quarter. ACADIA Pharmaceuticals (Nasdaq:ACAD) is plummeting 45% on news that an experimental schizophrenia drug failed a trial. Shares of China Direct, Inc. (Nasdaq:CDS) are slipping in afternoon trading on speculation that the management and consulting company will offer new shares.
On the upside, Motorcar Parts of America Inc. (Nasdaq:MPAA) climbed 13% on solid earnings results. Greenfield Online Inc. (Nasdaq:SRVY) rose some 12% on news that the firm will be acquired by Quadrangle Group for $15.50 a share. Cost Plus, Inc. (Nasdaq:CPWM) is up about 3% after it announced before Monday’s opening that its board unanimously rejected an unsolicited takeover bid from rival Pier 1 Imports Inc. (NYSE:PIR). Cost Plus said in a statement that the bid was “both distracting and ill-timed, given the difficult retail environment and the progress we have made investing in and improving our business.” Pier 1 is up some 4% after the announcement.
