Small caps shrug off negative financial woes and focus on HP and crude slide
After dipping into the red briefly this morning, small caps swung into the green, but remain almost flat midday, as earnings from tech heavy weight Hewlett-Packard, gains in the dollar, and a decline in crude overshadowed concerns surrounding the financial sector, notably Freddie and Fannie’s viability.
At 12:15 p.m. ET, the Russell 2000 (NYSE:IWM) was up 0.50, or 0.07%, at 730.53, while the Dow was up 0.08% and the tech-laden Nasdaq had slipped 0.04%.
The market focused on the positive in the negative news abyss. Hewlett-Packard Co. (NYSE:HPQ), the world’s largest computer maker, posted robust quarterly results that bested the consensus on Wall Street and fueled a surge in the tech-heavy Nasdaq for a good portion of the morning.
In other positive news, the greenback is gaining against the euro and the yen midday after having trimmed gains earlier in the session. The price moves reflect confidence from overseas investors on the U.S. economy and U.S.-tied assets — including stocks.
As the dollar has rallied, crude oil has turned lower, slipping $1.58 to $112 and change a barrel midday following a report from the Energy Information Administration that oil inventories increased more than forecasted from last week. The commodity has sold off from a surge above $116 a barrel earlier this morning.
Although the major indices have escaped from the losses seen earlier today pushed down by financial jitters, such financial woes still linger in the shadows. Freddie Mac and Fannie Mae continued to stoke uneasiness surrounding the financial sector, as many investors perceive the mortgage lenders will require a larger-than-anticipated bailout by the U.S. Treasury. Analyst downgrades also added to the pressure. Goldman Sachs slashed its earnings estimates on Citigroup (NYSE:C) and Lehman Brothers (NYSE:LEH) and capped a “sell” rating on Citi. Lehman is under pressure after a New York Post article stated the bank was unable to raise capital from Korean investors. There are also rumors floating around that Lehman might be forced to liquidate its asset management segment in an effort to raise needed capital and shore up its balance sheet.
In economic news, the Mortgage Bankers Association reported today that mortgage application volumes skidded last week to the lowest level in eight years. The report is a reminder of the anemic housing market and comes on the heels of Tuesday’s report from the Commerce Department that housing starts fell 11% in July.
Broader industry groups on the rise midday include nonferrous metals, computer hardware and full line insurance, while mortgage finance, forestry and real estate services are under pressure.
In small cap headlines, shares of Novatel Wireless, Inc. (Nasdaq:NVTL) have continued to plunge in midday trading after the wireless broadband provider lowered its forecast for second-quarter results after Tuesday’s close. Given the challenging macroeconimic environment, the firm also issued third-quarter results substantially below the Street’s forecast.
Accuray Inc. (Nasdaq:ARAY), a radio surgery system provider for the treatment of solid tumors, reported fiscal fourth-quarter results that missed consensus estimates by a long shot. However, muting the stock’s sliding price from earlier in the day was that the company issued fiscal 2009 revenue guidance below to above the mean forecast on Wall Street. Shares were mostly flat midday.
Software provider for retailers Retalix Ltd. (Nasdaq:RTLX) posted second-quarter results early this morning that bested the consensus on Wall Street. Going forward, the company noted that it expects the improving trend in cash flows from operations to continue in the coming quarters. Shares edged up 2.5% midday.
