Small caps continue to slip
Though major stocks are trading generally higher, small caps have continued sliding in midday Monday trading. A drop in crude oil prices and a better-than-expected report on pending home sales for April was not enough to rally small-cap stocks. At 1:37 p.m. ET, the Russell 2000 (NYSE:IWM) was down 4.11, or 0.56%, at 736.26.
Crude oil prices were off more than $2 dollar a barrel into midday trading, slipping to $136.34 a barrel in recent action. The price decline is a welcome sign following Friday’s historic surge in energy prices and national pump prices breaking the $4 barrier over the weekend.
Small-cap investors were encouraged by a better-than-expected report on April pending home sales in early trading, but gains were lost shortly thereafter. Pending home sales rose 6.3% in April, according to the National Association of Realtors. Analysts anticipated a dip of 0.3%.
A big acquisition deal among large-cap insurers also boosted investor psychology. Willis Group Holdings (NYSE:WSH), the world’s third-largest insurance brokerage, announced a deal to buy rival Hilb, Rogal and Hobbs Co. (NYSE:HRH) for $1.7 billion, news that sent HRH shares soaring some 44% on the opening.
In Monday midday trading, the U.S. dollar was up against the yen and the euro. The greenback slid during last week’s trading as European central bankers talked up rate hikes after Fed Chairman Ben Bernanke spoke about a desire to strengthen the dollar. In recent trading against the euro, the U.S. dollar was up to $1.5637.
Andy Busch, BMO Capital Markets’ foreign exchange strategist, said investors are watching oil and food prices as inflation indicators.
“In normal business cycles when the unemployment goes up, we focus on indicators that provide us insight into spotting a turnaround like housing or auto sales or durable goods,” Busch said. “However in the financial markets, we're focusing more on inflation from energy and food than on whether the economy has bottomed. So things are a bit strange to say the least.”
Lehman Bros. (NYSE:LEH) is down some 9% after the brokerage firm announced it will raise $6 billion to shore up its balance sheet. Lehman made the announcement after saying it will record a larger-than-expected loss of almost $3 billion during the second quarter. Also on the financial front, banking stocks could be on the defensive following news that Lehman Bros. analysts cut profit forecasts for Citigroup (NYSE:C), Wachovia (NYSE:WB) and JP Morgan (NYSE:JPM). Also on the banking front, shares in Swiss firm UBS (NYSE:UBS) took a dive in European trading.
Broad market sectors on the rise this afternoon include insurance, coal energy, non-cyclical crops, oil well services and equipment, oil and gas operations and railroad transportation. On the downside, computer peripherals, fabricated plastic and rubber, casinos and gaming, money center banks, forestry and wood products and computer storage device companies were attracting sellers.
Small caps on the move in midday action include the Stamford, Conn.-based maker of agricultural and medical technology products Aristotle Corp. (Nasdaq:ARTL), which is up some 14% despite no news. Third Wave Tech Inc. (Nasdaq:TWTI) is rallying about 6% in unusually brisk volume on news that Hologic Inc. (Nasdaq:HOLX) would buy the firm for $11.25 a share, or about $580 million. Another small-cap takeover deal involved CostPlus Inc. (Nasdaq:CPWM), whose shares jumped 14% on news that Pier 1 (NYSE:PIR) would buy the firm for $48.4 million. Among losers, Rimage Corp. (Nasdaq:RIMG) shares are plunging some 20% after the maker of digital publishing systems lowered its second-quarter outlook.
