Small caps up, buyers soothed by tame inflation data
Small-cap shares edged higher on the opening, supported by a reversal rally that was triggered ahead of the opening by a tame inflation report. At 9:53 a.m. ET, the Russell 2000 (NYSE:IWM) was up 3.24, or 0.44%, at 740.09.
The CPI (Consumer Price Index) headline figure came in at 0.2%, which was below the forecast of 0.3%. The “core” reading, which excludes food and energy costs, came in at 0.1%, also below the median forecast of 0.2%. The CPI report suggested inflation wasn’t raging out of control, which sparked a reversal in fortune for equities in the overnight session, and the buyers remained in place for the regular opening.
“Headline consumer inflation rose moderately in April because a sharp rise in food prices was partially offset by no change in energy costs,” Steven Wood, chief economist with Insight Economics, said in an email. “Meanwhile, core consumer inflation rose only slightly with largely offsetting price accelerations and decelerations in the various expenditure categories. Although energy prices are expected to rise sharply over the next several months, weakening economic activity over the next several quarters should help cap the gains in core inflation. Although the Fed is currently on hold, at least temporarily, they have heaved a collective sigh of relief with the release of this data,” Wood said.
The market appeared to take away a perception of a hawkish tone from the array of Federal Reserve speakers that were out and about Tuesday, and the CPI report helps soothe some inflation jitters.
However, considering gas prices jumped aggressively this week around the country, and food prices seem exasperatingly high, it seems understandable that the CPI report could spark some sense of disbelief among consumers. There are news reports circulating that some rural school districts are pondering a shift to four-day weeks to cut costs — primarily spurred by rising energy input levels.
Speaking of energy, crude oil futures edged lower into the U.S. stock market opening, which could provide some relief for the equities bulls. Crude oil prices were pulled down by comments from Iranian officials that there are no plans to cut exports — a day after the Iranian president threatened to review a cut in crude output.
In overseas trading, equities were mostly higher, with Japan up 1.1%, China up 3.2%, Australia up 1% and Bombay up 1.3%. Also, European shares jumped higher ahead of the U.S. opening in response to the CPI data.
Large-cap stocks in the news this morning included Deere & Co. (NYSE:DE), which was down 5.7% on the opening, pulled lower by a cautionary outlook for 2008 despite solid Q1 results. Also, Whole Foods Market Inc. (Nasdaq:WFMI) was down 10% on sloppy earnings. On the upside, Freddie Mac (NYSE:FRE) was up 5.2% after posting a smaller-than-expected loss for the quarter.
Among broad market sectors, the top-performing groups on the opening included thrifts and mortgage financial firms, department stores, specialty stores and apparel retail. On the downside, coal, farm machinery and casinos were attracting sellers.
As for individual small-caps, China Automotive Systems (Nasdaq:CAAS) was up about 16%, gapping higher on positive earnings. CommVault Systems (Nasdaq:CVLT) rose 11%, also gapping higher in the wake of earnings news. On the downside, American Science and Engineering (Nasdaq:ASEI) was off about 10% after soft quarterly results.
