Small caps rise in rollercoaster session
Small caps have been on a rollercoaster ride in Tuesday’s trading, falling in morning trading on soft economic data, a global rout in equities and a record-low U.S. dollar, but rebounding in afternoon trading after crude oil plunged more than $8. Continuing worries over the health of the American economy prompted a widespread sell-off in stocks, which sent oil dropping. At 1:10 p.m. ET, the Russell 2000 (NYSE:IWM) was up 6.5, or 0.98%, at 671.
In a highly volatile session, crude oil has fallen $8.14 from its intraday high to $137.04 a barrel in recent trading.
In testimony this morning, Federal Reserve Chairman Ben Bernanke told Congress that the U.S. economy is faced with "numerous difficulties.” Bernanke’s comments came on the heels of the Fed and Treasury’s announcement that it would financially support Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) if necessary. The Fed chairman said that the financial markets remain under “considerable stress” and that consumer spending was likely to be “restrained” in coming quarters.
On the inflation front, the PPI headline figure came in at plus 1.8%, which was well ahead of the forecast for a rise of 1.3% and the year-over-year figure was a sobering plus 9.2%, the largest rise since June 1981. On the consumer spending ledger, the news was also dour, with June retail sales up just 0.1%, well down from the median forecast for a rise of 0.4% as car sales notched their biggest drop in more than two years. Even when excluding autos, June sales were up just 0.8%, which also missed the forecast for a rise of 1%.
Retail sales in May were strong, and although this month’s figure missed the estimate, it was still a decent number. The problem is that May and June sales were temporarily boosted by government stimulus checks and the strength is seen as temporary from most analysts. “Despite recent strength, consumers are slowly and grudgingly succumbing to job losses, high energy prices, the housing meltdown and the financial market turmoil,” Steven Wood, chief economist with Insight Economics, said in an email.
The U.S. dollar was dumped en masse as global investors elected to steer clear of financial uncertainty. The greenback has recovered some losses during morning trading but is still down against both the yen and the euro.
Broad market sectors on the decline this afternoon were highlighted by coal, iron and steel, metal mining, oil and gas operations, oil well services and equipment and railroads. Sectors attracting buyers include non-apparel textiles, technology retailers, audio and video equipment, home improvement retailers, airlines and footwear companies.
Small-cap stocks on the move were paced on the downside by Sonic Automotive (NYSE:SAH), which is down some 18% as the firm revised its annual earnings target. 1-800-FLOWERS.COM Inc. (Nasdaq:FLWS) is down about 5%, gapping lower to 52-week lows, extending a slide that has seen the stock shed 43% off the June highs. Infinity Pharmaceuticals (Nasdaq:INFI) was down 4%, gapping lower on news that the firm will discontinue a prostate cancer trial drug.
On the upside, Edge Petroleum Corp. (Nasdaq:EPEX) jumped almost 29% on news that the firm will merge with Chaparral Energy Inc. CSG Systems International Inc. (Nasdaq:CSGS) was up 19% on news that a contract with Comcast has been extended through 2012.
