Weekly claims, GDP weigh on small caps
It’s been a rollercoaster ride thus far for small caps, most recently trending deeper into the red along with the S&P 500 and the Dow after a gloomy weekly unemployment claims report and a weaker-than-expected read on GDP dragged equities lower.
At 12:46 p.m. ET, the Russell 2000 (NYSE:IWM) was down 3.44, or 0.48%, at 715.42, while the Dow down 0.98%, or 113.01, at 11,470.68.
The weekly claims number, reported this morning, spiked more-than-expected to 448,000 from last week’s 404,000 level. The claims number, which was substantially above the median forecast of a decline to 395,000, was pushed higher by an emergency unemployment program. The number was the single largest weekly claims figure in more than five years. Although this survey was taken after the numbers were collected for Friday’s monthly employment release, it has heightened jitters ahead of the Labor Department’s release tomorrow.
The second-quarter number for GDP, also out this morning, wasn’t comforting either. The nation’s domestic growth clocked in at 1.9% for the second quarter, below the forecast of 2.3%. Additionally, GDP for the past 3 years was revised downward. Fourth quarter GDP was reduced to minus 0.2%, the first decline in quarterly GDP since 2001.
"The revisions were ugly and will fuel the recession debate," Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. "Today's numbers were a big disappointment and will rev up the doom-gloom crowd to call for the end of the world. July was brutal. Let's hope we can focus on the Olympics -- I'm still expecting/hoping to see a stabilization occur in August without the massive swings July presented."
Although the weak GDP number and claims took the limelight today, there was some hopeful economic news in the abyss. The Chicago Purchasing Managers report came in stronger than expected. PMI was 50.8, above the forecast of 49 and above 50 for the first time since January.
For the first time in awhile, gyrations in crude oil prices were not the focal point. Crude sold off this morning, after spiking over $4 Wednesday, and continues to tread in the red. A barrel of light sweet crude slipped $2.40 to roughly $124 mid-session.
The economic reports managed to smother uplifting merger and acquisitions news. Bristol-Myers Squibb Co. (NYSE:BMY) made a bid to acquire ImClone Systems Inc. (Nasdaq:IMCL) for $60 dollars a share, or $5.2 billion. ImClone shares soared an impressive 38% recently.
In other corporate news, earnings season continues in full force. The Walt Disney Co. (NYSE:DIS) said after Wednesday’s close that its third-quarter bottom line increased 9% on account of growth at its sports channel ESPN, continued growth at its theme parks and a couple one-time gains. Cell phone maker Motorola (NYSE:MOT) reported a surprise profit for the second quarter, while analysts were expecting a loss. The results were due to stronger-than-anticipated mobile phone sales in North America. The stock is enjoying its strongest rally in four years today. CVS Caremark (NYSE:CVS) posted a 7% uptick in second-quarter earnings due to strong revenues at its retail drug stores.
On the big oil front, Exxon Mobil Corp. (NYSE:XOM) has slipped about 3% as record profits missed analysts projections on a decrease in production that retarded earnings growth.
In broader industry groups retail drug services, security systems, biotechnology and airlines are gaining ground mid-session, while office supplies, coal, photography and iron and steel are under pressure.
In small-cap headlines, Cadence Pharmaceuticals Inc. (Nasdaq:CADX) is soaring 60% midday after the U.S. Food and Drug Administration said the trials for its drug Acetavance, a prospective treatment of acute pain and fever, are sufficient to submit a new drug application.
Shares of Zones Inc. (Nasdaq:ZONS) have soared 52% after the company announced ahead of the opening it will be taken private for $8.65 per share in cash by its chairman and CEO.
PharmaNet Development Group Inc. (Nasdaq:PDGI) is up 29% after the drug development services company reported after Wednesday’s close that it swung to a profit in the second quarter and trumped analysts’ estimates. The Princeton, N.J.-based company said better margins and higher revenues in clinics and laboratories bolstered results.
On the downside, Innospec Inc. (Nasdaq:IOSP) has tumbled more than 30% after reporting after Wednesday’s close that its second-quarter net income plunged 88% on an after-tax write-off of $2.5 million, a goodwill impairment, a restructuring charge and a real estate gain. Revenues also missed the consensus on Wall Street.
Wireless networking solutions maker Harris Stratex Networks Inc. (Nasdaq:HSTX) has tumbled 31% mid-session after stating that fourth-quarter results will be hurt by higher costs and accounting discrepancies. The Morrisville, N.C.-based company said it will have to restate its financial results for fiscal years 2005 through 2007.
