Small caps retreat on sloppy econ data, lower profit forecasts
Small-cap stocks took a dive on the opening as the optimism that drove a sterling three-day rally abated amid a backlash from sobering economic data and a fresh batch of downbeat corporate forecasts. However, tech stocks were surprisingly firm today, which helped the overall market bounce off the morning lows. At 10:02 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.44, or 0.78%, at 439.74.
Market watchers were hip deep in data overload this morning as various government and private offices release reports early ahead of the Thanksgiving Day holiday in the United States. Amid this smorgasbord of information, the headliner appeared to be durable goods report, which showed a jolting decline of 6.2%, the largest drop in more than two years and well beyond the consensus forecast for a drop of 2.7%. The durables data base can be a little volatile, especially with huge orders for aircraft involved, but in this report orders for almost every category were down, and orders for non-defense capital goods excluding aircraft were off 4%. Shipments of finished goods were also down, which is a troubling sign for U.S. manufacturers and their likely hiring plans.
Another gloomy report on manufacturing came from today’s Chicago Purchasing Manager’s Survey, which was at 33.8, well below the 38 forecast and at the lowest point in 26 years. Meanwhile, new home sales were at an annualized rate of 433,000 units, down from the forecast of 440,000. The Michigan sentiment survey came in at 55.3, which was below the projection of 57.9 and at the lowest point since 1980.
Speaking of hiring (or the lack thereof), the weekly claims report came in at 529,000, which was in line with the forecast of 530,000. Even though the number of people filing for unemployment insurance fell 14,000 from last week, it should be noted that last week’s report included the highest four-week moving average in 25 years and the highest continuing claims level in 26 years. The continuing claims figure eased to 3.96 million this week, down from 4.02 million last week, but these numbers remain at historically lofty levels and the jobs picture in America is expected to get worse before it gets better.
Heading into this morning’s open, stocks in Europe were down about 1.3%, also on target to snap a three-day winning string. In Asia, China cut interest rates for the fourth time since September, this time whacking off the biggest chunk in some 11 years, which underscored potential slowing in the world’s fourth largest economy. Japan’s massive auto manufacturing firm, Toyota, saw its credit rating lowered for the first time in a decade.
The U.S. dollar was up against the euro this morning, rising about 0.8% and was flat against the yen, which could weigh somewhat on commodity prices, but which clearly wasn’t getting in the way of the crude oil market this morning. Crude oil prices jumped higher into the stock market open, rising about $1.7 a barrel on hope that the China rate cut would help bolster demand from that key customer. Weekly inventory data later this morning could spark a move in energy markets.
On the individual company front this morning, the market absorbed dreary forecasts from a wide range of players, including clothing retailer J Crew Group Inc. (NYSE:JCG), jeweler Tiffany & Co. (NYSE:TIF), electronic connectors firm Thomas & Betts Corp. (NYSE:TNB), semiconductor testing equipment company Verigy Ltd. (Nasdaq:VRGY) and farm machinery manufacturer Deere & Co. (NYSE:DE).
Individual small caps of note this morning included Andersons Inc. (Nasdaq:ANDE), which gapped lower and was down 27% as the agriculture company revised earnings downward. Conn’s Inc. (Nasdaq:CONN) was off 13% as the specialty retailer reported earnings. AGCO Corp. (NYSE:AG) was down 12% as the farm machinery maker drafted lower with Deere & Co., which was also off 12% early today. On the upside, American Railcar Industries Inc. (Nasdaq:ARII) was up 10% as the railcar manufacturer continues to climb off 52-week lows forged last week.
Looking at the chart picture, the market had a nice three-session rally ahead of this morning’s pullback, so a “breather” day ahead of the holiday wouldn’t be a surprise. There is a nice bullish reversal on daily charts from last week’s bottom that is still very much alive. If the market starts to struggle as the day progresses, then support comes in at 433, 422 and 413.50. Meanwhile, resistance is at 442, 454 and 468. Take note that futures trading on foreign exchange and interest rates close early today at 1:00 p.m. ET ahead of Thursday’s holiday, which could sap liquidity out of equities in the afternoon.
