Russell slips in choppy trade
Small-cap stocks turned lower in choppy trade, unable to sustain buying enthusiasm from Tuesday’s dramatic surge as crude oil prices pushed higher overnight, sparking profit-taking from hot money traders who caught the bounce. At 9:54 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.80, or 0.56%, at 678.92.
Crude oil futures bounced nearly $2 dollars a barrel to about $138 dollars heading into the stock market open. Energy markets were lifted by reports that Iran test fired missiles to show that they would retaliate if Israel attacks their nuclear production facilities.
Losses were limited by gains in overseas equities trading. Hong Kong stocks rallied 2.7%, China was up 3.9%, Australia up 1.6%, India shares jumped 4.6% and Singapore markets were up 1%, catching up with the big move in U.S. equities from Tuesday.
Earlier this morning, the MBA Mortgage Applications Survey rose 7.5% in the latest weekly period, the second consecutive weekly advance. However, this data series can be volatile, and the total level of mortgage applications are still 18% below last year’s figures. The purchase index on the report rose 6.7%, but is also down 19.4% from 2007. The release of the numbers ahead of the open appeared to have very little immediate trading impact on after-hours stock index markets.
The official start of the earnings season kicked off in fine fettle as Alcoa Inc. (NYSE:AA) rose more than 4% on the open this morning after quarterly results came in better than expected, and helped calm pre-earnings season angst about profits. Other large caps in the news included Nucor Corp. (NYSE:NUE), which jumped nearly 5% early following an analyst upgrade. Airlines were soft this morning with the bump in crude oil prices, with Delta Air Lines Inc. (NYSE:DAL) off about 2%.
Despite the optimism surrounding Tuesday’s big recovery rally, there remain concerns from several corners about the picture looking forward. In a research report this morning, analysts at Goldman Sachs said, “While U.S. equities finished sharply higher Tuesday, with lower oil prices helping sentiment, the real story was the rotation out of commodities into financials that benefited from Bernanke’s comments that the Fed may extend the duration of its facilities for primary dealers beyond year-end.”
Goldman said that a “snap-back rally” was always possible and that on a pure valuation basis, some investors might ask whether economic risk is now adequately priced into the stock market. “We think it remains dangerous to trade against the downside equity market trend based on valuation metrics alone at this point. The market is in the process of adapting expectations to a less optimistic view of the macro environment. And what looks cheap now may not look that cheap in the near future, should fundamentals turn even less friendly going forward. In this regard, the economic environment overall is still likely to remain challenging and uncertainty remains high.”
Broad market sectors on the rise early today were highlighted by steel, fertilizer, aluminum, coal, metals and mining, homebuilders and construction materials. On the downside, thrifts and mortgage firms, airlines, residential REITS, consumer finance and casinos were all taking a hit.
Individual small caps of note included Arris Group (Nasdaq:ARRS), which was down 22% after the firm lowered its quarterly outlook. Idenix Pharmaceuticals (Nasdaq:IDIX) tumbled 10% after hitting a multi-month closing high Tuesday. Hersha Hospitality Trust (NYSE:HT) was off about 7% on earnings news. On the upside, Ultralife Corp. (Nasdaq:ULHI) rallied nearly 20%, gapping higher on solid preliminary earnings news. Toreador Resources Corp. (Nasdaq:TRGL) was up about 13% after the company announced plans to repurchase convertible bonds. The stock made new move lows Tuesday.
