Small caps shrug off bad news barrage
Small-cap stocks closed higher Wednesday, notching an impressive upside move given a sharp increase in crude oil prices, tame economic data, financial share erosion and concern about retail spending patterns. Still, a boost from technology shares and solid investor appetite for riskier small-cap fare won the day. In the end, the Russell 2000 (NYSE:IWM) gained 2.75 or 0.37%, to 747.69.
Once again, small caps were strong relative to the Dow and S&P 500, which were pulled down by struggling large-cap banks, big manufacturing firms and losses in large retailer names. For the day, the Dow was off 0.94% to 11,532.96, and is down 13% for the year. S&P 500 futures were only down 0.29% at 1,285.83, and are off 12.4% for the year. Meanwhile, small caps continue to be the relative safe-haven this year, off only 2.3%.
Stocks were impressively resilient in the face of a huge bounce in crude oil futures, which rallied some $3 dollars a barrel, or 2.65%, to $116 as a surprise drawdown in weekly stocks added to concerns about conflict between Russia and Georgia. Crude oil stocks dropped some 400,000 barrels, roughly double the forecast, and President Bush authorized American military forces to deliver humanitarian aid to Georgia while telling Russia it “must keep its word” and end the fight.
Normally, the headlines today would be dominated by the market’s response to monthly retail sales figures, but the data was basically in line with expectations and seemed to have very little overall impact on trading decisions. There was some concern that big-name retailer firms such as Macy’s (NYSE:M) lowered their outlook, but M shares actually pushed higher by the close. However, a soft tone was evident among the sector, with the S&P Retail Index slipping 2.3%, which seemed to dovetail with the soft numbers seen in today’s retail sales release. The retail sales headline figure was down 0.1%, which matched the forecast, but they were pulled down significantly by consumers turning their backs on automobiles.
“Tax rebate dollars helped to lift consumer spending in May, which translated into a 1.5% annualized increase in inflation adjusted consumer spending during the second quarter,” Asha Bangalore, economist with Northern Trust, said in an email. “However, in June, inflation adjusted consumer spending fell 0.2%. Retail sales fell 0.1% in July, after a revised 0.3% gain in June. The July retail sales report points to a strong likelihood of another monthly decline in inflation adjusted consumer spending,” she said.
Interestingly, the retail sales report was actually upstaged by the monthly import price report, which seldom generates more than a yawn from all but the diehard economic number crunchers. However, the import price data reflected a 1.7% rise in prices, and a year-over-year gain of 21.6%, the largest in some 26 years. It was enough to spark a little morning slide in Treasury products, which shudder at the thought of inflation because it devalues the price of fixed income investments. However, the import price data is dated (June numbers) and it’s really not that big of a surprise to hear that petroleum prices went through the roof. Looking ahead to Thursday morning, the market will get a chance to respond to weekly unemployment claims, which has turned into “must see” data on a weekly basis now that claims are at six-year highs and the unemployment rate is at a four-year peak. What’s more, we’ll also get key inflation data in the morning in the form of the Consumer Price Index, which should start Thursday’s trading out with a bang.
Looking at today’s best sector performances, we know that banks and retailers struggled, but the biggest losses were seen in automobile manufacturers, tire and rubber firms, industrial REITS and home improvement retailers. On the plus side, coal, metals, steel, fertilizer, oil exploration, oil drillers, gold and aluminum all were attractive to investors.
Among individual small caps, Reis Inc. (Nasdaq:REIS) shot up 64% on news that the firm was offered a buyout for $8.75 a share. ARYx Therapeutics Inc. (Nasdaq:ARYX) rallied 21% as investors embraced earnings news. Dover Motorsports Inc. (NYSE:DVD) rose 15% without any apparent fresh news to gear the move. On the downside, Gilat Satellite Networks Ltd. (Nasdaq:GILT) jolted the bulls by sinking 15% to 10-month lows.
