Russell rises on Bernanke comments, factory orders data
Small-cap stocks pushed higher on the opening, supported by a modest dip in crude oil prices, ideas that Monday’s slide was overdone, solid factory orders data and comments from Federal Reserve Chairman Ben Bernanke. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 4.28, or 0.58%, at 745.30.
Bernanke said that monetary policy was well positioned to promote growth and price stability, but that until the housing market stabilizes, growth risks remain on the downside. In addition, Bernanke said that financial market conditions have improved, but are still strained. Bernanke made a rare comment about the dollar, which sparked a dramatic reversal in the dollar’s value against the euro, sending the greenback to a gain of about 0.6% versus the euro after being lower before the U.S. stock market opening. This was Bernanke’s first public policy statements in about a month, and the market appeared to embrace his comments, with stock futures edging up a couple of handles from the overnight price, in addition to the dollar rally.
The factory orders report came out at 10:00 a.m. ET, with the headline figure at plus 1.1%, well above the median forecast for a dip of 0.1%. Stock index futures markets pushed higher immediately after the release of the numbers.
Crude oil prices tumbled more than $2 dollars per barrel in response to the rise in the U.S. dollar. Billionaire investor George Soros said today that the rise in oil prices and other commodities resembles some bubble moves. He also said that a crash in oil prices is not imminent and that commodity index trading is inflating the speculative bubble in physical markets.
There is a perception among some traders that if the energy market starts to sink, we could see a massive unwinding of a short dollar/long crude oil trade that would stand to benefit the greenback and equities as traders shift funds away from energy and back into stocks. However, that theory is just speculation at this stage. There is also a firestorm of jawboning from regulators and elected officials about market oversight and speculative commodity buying as everyone scrambles for a scapegoat for the rise in gasoline prices.
Advances in stocks this morning were limited by declines in overseas stocks, and by spillover jitters about financial shares in the wake of Monday’s declines and talk of firms still raising capital to offset debt write-downs. Lehman Bros. (NYSE:LEH) responded to reports that the firm would raise capital by selling stock, saying that the firm could raise capital, but doesn’t have to do so. Lehman Bros. shares were down about 2% shortly after the opening. State Street Corp. (NYSE:STT) also was said to be raising capital, but the stock reversed overnight losses and was up 1.4% in early trading.
Other large caps of note included General Motors Corp. (NYSE:GM), which was up 1.7% after announcing plans to shutter some truck factories in North America and to focus efforts on smaller vehicles in response to consumer frustration with higher pump prices. General Motors and other carmakers are slated to release monthly vehicle sales throughout the day.
Global equity markets were lower overnight, catching up with the big decline in U.S. prices on Monday. Japan was off 1.6%, Hong Kong down 1.8%, Singapore lost 1%, South Korea shed 1.5%, Taiwan lost 1.6%, Australia was down 1.5% and Bombay was off 0.6%.
Broad market sectors on the move higher today included agriculture chemicals, health-care facilities, airlines and employment services shares. On the downside, tire and rubber companies were sharply lower. Gold, semiconductor stocks and integrated telecoms were a mild drag on the market early.
Individual small caps of note included VNUS Medical Technologies (Nasdaq:VNUS), which jumped some 10% as the firm settled a patent infringement lawsuit. National Research Corp. (Nasdaq:NRCI) climbed nearly 7% without any apparent fresh news. Small caps attracting sellers early included New Frontier Media (Nasdaq:NOOF), which tumbled 14% on earnings news. Also, Mitcham Industries (Nasdaq:MIND) was off 9%, gapping lower following quarterly results.
The chart structure remains top-heavy after a couple of failures to crack key long-term resistance at 750. However, the short-term picture has improved after the solid bounce from Monday’s intraday lows. There is a double bottom on the lows from Monday that offers important support. In addition, support comes in today at 735. On the upside, resistance is at 750, then at 754 and 760.
