Small caps up on crude dip
Small-cap stocks pushed higher Wednesday, underpinned by a slide in crude oil prices and a stabilization in the latest bout of credit crunch fears. The Russell 2000 (NYSE:IWM) closed up 4.71, or 0.64%, at 743.71, outperforming both the Dow and S&P 500, both of which struggled to close near steady levels.
Once again the small-cap market retreated after moving close to key long-term resistance at 750. That point marks a 50% Fibonacci retracement of the entire bear market collapse and has been a difficult spot for bulls to crack on the rally off the March lows. Looking at short-term charts for Thursday, resistance is at 745, 750 and 754, while support comes in at 735, 731 and 726.
Crude oil prices slumped more than $1 dollar per barrel Wednesday, dipping back below $124 as the weekly stocks report showed a build in gasoline inventories. In addition, the demand picture might be softening a bit as India and Malaysia decided to raise fuel prices, which could curb demand out of Asia. Airline stocks have had a mild sigh of relief this week on the pullback in energy prices, and the AMEX Airline Index climbed 3.31% Thursday. Small-cap stock US Airways (NYSE:LCC) gained about 3.6%, while UAL Corp. (Nasdaq:UAUA) rallied about 5% as the major airline announced plans to reduce workforce and fleet numbers.
The market continues to closely watch developments on the financial front as talk has expanded again this week about debt write downs, and the need for some banks and brokerage firms to raise capital to shore up balance sheets. Much of the focus the last two sessions has centered on Lehman Bros. (NYSE:LEH), and the firm’s stock has been on a rollercoaster. Today, Lehman Bros. managed to rise about 2.5% to near 31.40, rallying back from intraday lows at 28.52.
Investors had a chance to trade off several different economic reports this morning. Overall, the data was a mixed bag and appeared to have little more than a short-term impact on trading decisions. To recap, the ADP private employment survey showed an unexpected increase in new jobs in May, which was a supportive element ahead of Friday’s big monthly employment report from the Labor Department.
The market also digested the MBA mortgage application index, which slumped to six-year lows. With housing prices on the defensive and rates firming, it’s no surprise to see mortgage applications soft. Then, the productivity data came out slightly above the forecast, and appeared to spark a collective yawn from investors who were far more preoccupied watching the tick gyrations in Lehman Bros. shares. Finally, the ISM Non-Manufacturing Survey also beat the forecast and the market promptly sank even lower. A midday recovery in stocks may well have been helped by the ISM and ADP data, but given the timing of the bounce, it seemed more likely that the move was spurred by the dip in crude oil and by relative stability in financial shares.
Federal Reserve Chairman Ben Bernanke cautioned about the rising signs of long-term inflation expectations, but his speech topic was tied to comparisons to the mid-1970s and appeared to have little more than a fleeting minor bearish influence on large-cap equity index products.
Broad market sectors on the rise today included education services, tire and rubber stocks, publishing and printing shares, and leisure products. Meanwhile, refining and marketing stocks were the biggest losers, followed by coal, specialized finance and automobile manufacturers. It’s been a tough week for U.S. carmakers. Ford (NYSE:F) lost about 2.7% today and is at the lowest level since early April; General Motors Corp. (NYSE:GM) shed nearly 3% today and has been unable to muster upside enthusiasm this week despite a bullish article in Barron’s. It probably hasn’t helped that monthly vehicle sales numbers released Tuesday were downright dreadful — the worst in a decade.
Small caps of note today included Cantel Medical Corp. (NYSE:CMN), which jumped over 13% ahead of earnings news. Kenneth Cole Productions (NYSE:KCP) surged 7% on unusually brisk volume without any apparent fresh news in play. Bob Evans Farms Inc. (Nasdaq:BOBE) shares were sizzling today, as the company gapped higher, soared 17% on the day and added over $100 million to its market cap.
On the downside, Grubb and Ellis Co. (NYSE:GBE) slumped 11% as the firm acquired an office building in California. OMNI Energy Services Corp. (Nasdaq:OMNI) tumbled about 9%, essentially wiping out much of the huge gain from Tuesday’s rally. Also, The Aristotle Corp. (Nasdaq:ARTL) was down about 9% and has been volatile in recent days without news.
Looking ahead to Thursday’s action, the market will get a chance to react to weekly unemployment claims ahead of the regular opening. The weekly claims data typically is not a big event for the market, but with the monthly jobs report on tap Friday morning, it could stir up a little extra interest in the claims release.
