Small caps climb back into green as oil spikes
Small caps have been on a rollercoaster ride in Wednesday trading after opening higher, slipping into the red midday and returning to the green in afternoon action as the showdown between crude oil and stocks resumed and investors digested a better-than-expected durable goods order.
At 1:17 p.m. ET, the Russell 2000 (NYSE:IWM) was up 0.16, or 0.02%, to 734.55, while the Dow was up 6.43, or 0.05%, to 12,554.78.
After deflating earlier in the session on news that Saudi Arabia would increase production and that Asian demand could begin to ebb because of high price levels, oil spiked sharply midmorning to resume its upward climb from last week. At its lowest point of the trading day, the commodity had leaked roughly $3 a barrel.
Though oil reversed course, the dollar remains in the green against the euro and the yen midday, while gold has sold off $7.50 to $900 per troy ounce.
Oil’s climb generally has the affect of pressuring stocks, as traders fear the inflationary impact on consumers’ disposable income for gas, food and discretionary items.
In economic news, small caps were initially lifted this morning after the Commerce Department reported pre-bell that durable goods orders edged down 0.5%; narrower than the forecasted slide of 1%. The bright spot that ignited optimism, however, was on the ex-transportation figure, which was up 2.5%, substantially greater than the consensus forecast of for a gain of 0.5%. Also, orders for non-defense capital goods excluding aircraft leaped 4.2% in April, which is the first increase since December.
“Let's see if that holds, though I wouldn't hold my breath,” wrote BMO Capital Markets economist Jennifer Lee in an email. “This report is notoriously volatile. But the improvement in non-defense capital goods ex air is a hopeful sign, [as it’s] a good proxy of current spending.”
The beleaguered U.S. dollar is fueling demand for American exports, Andy Busch, global foreign exchange strategist for BMO Capital Markets, wrote in an email.
“The weak U.S. dollar clearly continues to have a positive impact on the demand for U.S. goods,” Busch said. “This is in direct opposition to what Europe is experiencing. How far this goes is a question of how long the Euro stays above 1.5000.”
After the durable goods orders report, treasuries sunk, signaling that perhaps the Federal Reserve is more likely to raise rates.
The MBA Mortgage Application survey also came out this morning, and reflected slack demand, with the index down 4.6% and the purchase index off 17.4%. This is a volatile data base and appeared to be overshadowed by the durables surprise. Later this afternoon Minneapolis Federal Reserve president Gary Stern is slated to talk about regional, national and world economic events.
In broader industry groups, apparel, accessories and footwear are higher midday, while banks and beverages are under pressure.
In small cap headlines, book retailer Borders Group, Inc. (NYSE:BGP) reported late Tuesday that it recorded a larger-than-expected loss for the first quarter and a decline in revenue that also fell below the expectations on Wall Street. Shares have slid 6% midday. After gaining 14% Tuesday on a rosy revenue outlook, shares of Lucas Energy (Amex:LEI) lost 12% midday.
On the upside, Gevity HR (Nasdaq:GVHR), which serves as the full-service human resources department for small and mid-sized businesses, issued its 30th consecutive dividend, lifting shares 11% mid-session.
