Sinking fast on weak earnings, gloomy econ data
Small-cap stocks pushed lower on the opening, pressured by a sloppy batch of earnings reports this morning and another weak slate of economic reports that threatens to break a four-day winning streak for the market. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was down 11.00, or 2.32% at 462.03.
New home sales fell off a cliff today, sinking 14.7% to an annual rate of 331,000 units, way below the forecast of 400,000. The stock market appeared to extend the morning slide after the dreary home sales report.
The weekly claims report came in at 588,000, which was a tad higher than the forecast. The bleak news was on continuing claims, which rose to record highs at 4.77 million, topping the recessions from the 1970s and 1980s in the process. This was a sobering look at recent layoffs ahead of the big monthly employment report next week.
Also on the data front, the durable goods report came out at minus 2.5%, which was nominally worse than the projection for a decline of 2%. However, when stripping out the “big ticket” transportation orders, durables were off 3.6%. This marked the December report on durable goods; for the year, orders were down more than any year since 2001.
As for the latest earnings reports, Allstate Corp. (NYSE:ALL), QUALCOMM Inc. (Nasdaq:QCOM), Black and Decker Corp. (NYSE:BDK) and Fortune Brands Inc. (NYSE:FO) all posted various troubling numbers on profit reports, setting a bleak tone for the morning, just a day after investors were finding spots of good news on the profit front for buying enthusiasm.
Interestingly, all the bleak news on earnings and economic data shuttled aside excitement over the House passage of the Obama stimulus plan; but even before today’s data, the market was already lower, suggesting that the House passage wasn’t a surprise and that the market would need something fresh to spark an extension of Wednesday’s rally. There also were concerns that partisan politics could still stall the package moving forward.
Crude oil prices were on the defensive this morning, with futures off some $1.60 a barrel into the stock market open. In recent days, crude oil prices have been closely tethered to equities, and today’s rugged economic data reinforces the demand difficulties facing energy companies. Shortly after the open, energy shares were off 2.4%.
Individual small caps on the move this morning included DryShips Inc. (Nasdaq:DRYS), making another of its frequent appearances on various “biggest mover” lists as bulk shippers are clearly attracting quite a bit of trading flow in recent months. DRYS tumbled some 22% today amid news that the firm was in breach of loan covenants. Oshkosh Corp. (NYSE:OSK) fell 20% as the specialty equipment maker posted a quarterly loss and announced job cuts. Banner Corp. (Nasdaq:BANR) fell 15%, gapping lower as the bank holding company announced quarterly results. On the upside, OSI Systems Inc. (Nasdaq:OSIS) rose 16% as the electronics system designer received an earnings lift.
Looking at the chart picture, the Russell broke out to the upside Wednesday and now needs to hold above 466 on pullbacks to validate that breakout (which seems like a tough battle since the market already fell back below that point this morning). Sustained action above 466 would suggest a target move to 499 on the breakout. For today’s session, support is at 458.50 and then at 451. On the upside, resistance comes in at 474 and 481.
