Weak start, but choppy trade; banks weak vs. stimulus hope
Small-cap stocks edged slightly lower in choppy early trade, with a downward spike in Europe bank stocks throwing a little cold water on a mild pre-market rise. Support stems from upbeat psychology as investors anticipate final formal approval today on a $789 billion stimulus spending plan. A dour reading on sentiment also played into the cautious early tone. At 9:55 a.m. ET, the Russell 2000 (NYSE:IWM) was down 1.05, or 0.23%, at 449.37.
A sudden freefall in Lloyds Banking Group this morning sparked a pullback off pre-market highs in stock index futures and pulled down sentiment into the U.S. stock market open. At one point, Lloyds was approaching 40% losses after saying that they would post a bigger loss than expected, which sparked spillover selling into Barclays and Royal Bank of Scotland. The volatility in Lloyds was severe, with the stock bouncing back to a 7% loss by the U.S. open. U.S. bank stocks were down about 3% shortly after the open, serving as a primary drag on the overall market indices.
The University of Michigan consumer sentiment survey came in at 56.2, which was well below the forecast of 61, and which appeared to trigger a mild selling extension in the stock market. A sub-index of the report on consumer expectations tumbled to the lowest level since May 1980.
The Obama Administration is looking at establishing a program to help subsidize mortgage payments, which would presumably stem the tide of foreclosures. That news helped spark a late recovery move in stocks Thursday and now faces deeper scrutiny by market watchers today and over the weekend.
Australian lawmakers passed their own stimulus spending program, overcoming some political hurdles that stalled passage earlier this week. The plan calls for $28 billion in spending stimulus projects, joining the U.S., China and other countries hoping to spark economic recovery this year through government funded projects.
Crude oil futures rose about $1 this morning, supported by enthusiasm for the anticipated approval of the U.S. stimulus program. Elsewhere on the commodities front, gold prices were taking a breather today, but have clearly benefited from safe-haven buying recently.
Individual small caps on the move this morning included Savient Pharmaceuticals Inc. (Nasdaq:SVNT), which fell 21% on news that an FDA review of its gout drug has been extended. Staying in the pharma realm, Orexigen Therapeutics Inc. (Nasdaq:OREX) fell 17% in a volatile morning session for the stock. On the upside, Electro-Optical Sciences Inc. (Nasdaq:MELA) jumped 65% as the melanoma specialist announced results of a study and said it will file an application for the FDA. United Stationers Inc. (Nasdaq:USTR) rallied 15% as the wholesale distributor received an earnings-related boost.
This week’s action has basically mirrored the range that has been in place since mid-January, with the upside press stalling in the shadow of key resistance in the 474 zone and the market finding buyers a few handles above the January lows near 431.25. As the day progresses, support comes in at 444, then a key point would be at the double bottom from late Thursday at 435.50. On the upside, resistance is pegged at 454, 461, 463.50 and 471.
