Small caps close in the red
Small-cap stocks tried in vain to dodge some serious data land-mines Thursday as investors anxiously await the big data bomb released with Friday morning’s employment report. Amid choppy seas, the Russell 2000 (NYSE:IWM) eventually finished down 4.34, or 0.60%, at 714.52, unable to shrug off dreadful unemployment claims, soft GDP numbers and a cautious tone from former Federal Reserve Chairman Alan Greenspan.
Day traders looking for a definitive direction in small caps today may have gotten a little seasick as the market see-sawed up and down, carried on the whims of economic data crunchers. The opening salvo (and the most dynamic move of the day) was a bearish tilt as weekly unemployment claims went through the roof. Although the survey period for Friday’s monthly jobs report was over before this week’s claims survey, it’s not exactly reassuring to see unemployment numbers spike way beyond expectations.
Just how bad was the claims report? The number came in at 448,000, swamping the forecast for a dip to 395,000 following last week’s already uncomfortably big 404,000 figure. To give it a little better perspective: it was the largest one-week claims figure for any week, of any month, in more than five years. If nothing else, the weekly claims report certainly shot more holes in Wednesday’s ADP employment report, which forecast job growth, nevermind recent reports of layoffs in financial and manufacturing areas.
Coming into today’s session, everyone expected second-quarter advance GDP to dominate the market’s data frenzy, but a GDP figure that was fascinating — and painfully soft — was trampled over somewhat by the weekly claims stunner. The headline figure for GDP came in at 1.9%, below the forecast of 2.2%. Slower-than-expected growth is no prize in its own right, but the big news was that the Commerce Department revised Q4 GDP to minus 0.2% and Q1 growth to 0.9%. Even by strict technical definition, the U.S. economy flirted with recession at the start of the year. Late this afternoon, former Federal Reserve chairman Alan Greenspan said in an interview on CNBC that although the data is not yet suggesting a recession, he would be “surprised” if the economy does not slip into recession. Greenspan also said that GSEs were a disaster waiting to happen, which clearly didn’t sit well with Fannie Mae (NYSE:FNM) or Freddie Mac (NYSE:FRE) shares. In fact, all of the major stock market index products noticeably slipped after the Greenspan interview.
Just to throw a little bone to the bulls, the Chicago Purchasing Manager’s Survey beat the forecast, and rose above 50 for the first time since January, sparking a bounce off the initial morning trough in stocks.
Of course, all these economic data risk events hit a crescendo with Friday morning’s monthly Labor Department employment report, which is expected to show non-farm payrolls slipped 75,000 in July, while the unemployment rate ticked up to 5.6%.
As one might expect, the U.S. dollar also had an uneven session Thursday, but did recover most of the morning losses against the euro. However, Treasury products remained on a bid, with the yield on the benchmark 10-year note tumbling more than 2% on the day, which suggests there was investor appetite for less-risky fare than equities ahead of the jobs release.
Remember Wednesday when crude oil shot $4 a barrel higher? Well, today crude oil tumbled $4 and was back below $123 in the final hour of stock market action. Crude oil traders are now focused on the demand side of the market, and they say that the weak economic data this morning could crimp demand out of the United States, which is still the biggest market for energy products on the planet. Some stock market watchers might find it ironic that crude oil traders are suddenly worried about high prices hurting demand … wouldn’t that have been a great concern to have about $50 a barrel earlier? The slide in crude oil prices helped ease commodity price inflation today, but there were still pockets of strength, most notably in softs, where coffee, sugar and cocoa all were wearing their rally caps.
Although today’s action was seemingly dominated by reaction to the various economic reports, there were plenty of interesting things going on in actual company news. Tech stocks were the stars today, driven up on strong biotechs and news of a big acquisition proposal in the pharmaceuticals arena. The deal involves Bristol-Myers Squibb Co. (NYSE:BMY) offering $60 dollars a share, or $5.2 billion for ImClone Systems Inc. (Nasdaq:IMCL). IMCL shares stormed right past $60 bucks to gain 37%, while closing near $64.
Broad market sectors on the rise were highlighted by paper products, homebuilders, office electronics, forest products, health-care services and building products. On the downside, coal, oil refining and marketing, industrial REITS, oil and gas drillers were the biggest losers.
Individual small caps on the move Thursday included Harris Stratex Networks Inc. (Nasdaq:HSTX), which gapped lower and tumbled 35% on unusually heavy volume as investors weren’t impressed with preliminary results announced by the firm. Bare Escentuals Inc. (Nasdaq:BARE) collapsed 32%, also on brisk volume as quarterly earnings news couldn’t gloss over bad returns for the cosmetics maker. Stoneridge Inc. (NYSE:SRI) fell nearly 27%, also tied to sloppy quarterly returns. On the upside, Cadence Pharmaceuticals Inc. (Nasdaq:CADX) exploded 67% on news that the firm received FDA approval for pain and fever trial drugs. Zones Inc. (Nasdaq:ZONS) jumped 53% on news that the firm will be bought out by the CEO for $8.65 a share in cash.
