Small caps slip on profit worries, holiday sales jitters
Small-cap stocks pushed lower, pressured by concerns about corporate profits, worries about late holiday spending results and ongoing jitters about the economy and the credit crisis. Losses were limited by optimism about stimulus plans for 2009 and persistent bargain hunting from market watchers who believe the bottom has already been made. At 9:54 a.m. ET, the Russell 2000 (NYSE:IWM) was down 6.42, or 1.32%, at 479.84.
Some early enthusiasm was tied to news that President-elect Obama will ramp up the job-creation goal of his stimulus package to 3 million new jobs from 2.5 million. The market is already hoping that Obama’s stimulus plans will help spark an economic recovery as 2009 progresses.
Walgreens (NYSE:WAG) posted a smaller-than-expected quarterly profit and announced plans to trim new store opening goals. WAG shares were off 4.1% shortly after the opening. It’s still early to get a good picture for shopping results in the United States over this past weekend, but with winter storms in the Midwest and Northeast, it might be difficult for retailers to come up with great results. Early this morning, the S&P Retail Index was down 0.5%.
Crude oil prices were choppy into the stock market open, but copper prices rose 4% in London trading, bolstered by a dip in the U.S. dollar against the euro and by news of a big jump in China imports during November. The greenback remained down against the euro, which could underpin various commodity markets today.
Citigroup analysts said that they remain underweight on utilities, autos and real estate investment trusts. Carmakers were a source of weakness for overseas markets following news that Toyota expects to post their first operating loss in 71 years. Now that the rescue plan for U.S. automakers has been announced, the market will likely focus on the trouble that still lies ahead for the industry. General Motors Corp. (NYSE:GM) was off 7.5% on the open, while Ford Motor Co. (NYSE:F) was down 2.7%.
The Toyota news, coupled with selling in financial shares, pulled down most Asian markets overnight (although Japan did manage a higher close). Losses in Asian markets were trimmed after China lowered interest rates once again. Even though chipmakers were higher in European trading, tech stocks were underperforming both the Dow and small caps at the start of today’s U.S. equities trading.
Individual small caps on the rise this morning included Rackspace Hosting Inc. (NYSE:RAX), which opened higher on light volume after taking a big hit Friday. The Nuveen Municipal High Income Opportunity Fund 2 (NYSE:NMD) was up 10%, climbing above the 20-day moving average for the first time since mid-November. On the downside, Grey Wolf Inc. (AMEX:GW) gapped lower and tumbled 40% to 52-week lows. Brown Shoe Company Inc. (NYSE:BWS) fell 10%, giving part of a huge rally from Friday.
From a technical analysis perspective, there are some positive signs to note, including recent sideways action, which is a break from the relentless downside press that was in play during mid-September through late November. Still, the market needs to tackle 491 with more conviction to bolster the bottoming argument. Looking at today’s action, resistance is at 491, 497, 504 and 514.50. On the downside, support is pegged at 473 and 461.
