Small caps eke out mild rise as retail sales rally fizzles
Small-cap stocks limped into the close, barely clutching onto a smidgeon of the steep morning rise tied to stout monthly retail sales figures. The Russell 2000 (NYSE:IWM) closed up 1.95, or 0.27%, at 719.84, but the advance felt somewhat hollow considering small caps shed 10 handles off the highs.
The day started off in fine fashion for the bulls, as the retail sales report topped analyst forecasts, providing further enthusiasm that was already in place from soft crude oil prices and a firm dollar. The overnight dip in crude oil turned out to be short-lived, however, as black gold pushed back near $137 per barrel in the afternoon, charging about $3 dollars off the levels seen into the stock market open. In addition, new crop corn futures soared to new record highs as flooding damages crop conditions in the heartland.
Despite the recovery in crude oil prices, energy stocks were on the defensive today following a downgrade on energy and an upgrade in the financial arena by Morgan Stanley analysts. Although that recommendation seems to buck the ongoing trends, it worked well today.
Some of the morning excitement in stocks was stoked by fresh news on the proposed acquisition of Anheuser-Busch Cos. Inc. (NYSE:BUD) by Belgian firm InBev, which reportedly has tendered a deal worth $65 dollars a share, or approximately $46.3 billion. Anheuser, the quintessential iconic American brewery, controls nearly half the U.S. beer market, including the top seller, Bud Light. M&A talk tends to lift investor psychology, and big-cap deals are also supportive to small caps on the theory that if there are deals to be done in large caps, there are certainly even more deals to be done for small caps.
Speaking of M&A activity, the late slide in stocks off the highs was also powered by news that talks between Yahoo! (Nasdaq:YHOO) and Microsoft Corp. (Nasdaq:MSFT) broke down without any deal being struck. Shares in Yahoo tumbled about 10% on the news, dragging down large-cap index products and causing a chill throughout the tech sector.
Although most of the major bank and brokerage stocks were in the green today, Lehman Bros. (NYSE:LEH) was still at the forefront of the beleaguered financial arena — and not in a good way. Lehman shares lost about 8% today after announcing an executive shakeup, demoting the CFO and COO. Despite low interest rates and aggressive moves by central bankers to provide credit, the ongoing credit crunch remains very much a concern with investors.
Small caps on the move today included Chindex International Inc. (Nasdaq:CHDX), which tumbled 30%, gapping lower on unusually heavy volume following sloppy earnings results. National CineMedia Inc. (Nasdaq:NCMI) also tumbled on brisk turnover, dropping about 28% in the wake of soft earnings. On the upside, Shuffle Master Inc. (Nasdaq:SHFL) rose about 21% to the highest point since March without any apparent fresh news to power the move. Also, Casella Waste Systems Inc. (Nasdaq:CWST) was up about 12% to the highest point since mid-January.
Looking ahead to Friday’s action, the market will get key data on inflation ahead of the opening in the form of CPI figures. Then at 10:00 a.m. ET, the Michigan sentiment survey could spark volatility for equities.
From a chart perspective, the wobbly close in small caps left the technical picture dominated by recent declines. In addition, the close below key support at 720.50 is potentially significant. Persistent action below that point would suggest another market failure into another lower zone, with the target for the next downside brush at 690.
