Small-cap stocks leap 1% on retail sales

Jennifer Schonberger | Jun 05, 2008 12:31pm EDT | Comment

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After advancing on the opening, small-cap stocks continued to push higher into the green midday on surprisingly solid May chain store sales figures.

At 12:27 p.m. ET, the Russell 2000 (NYSE:IWM) shot up 11.85, or 1.59%, at 755.56, while the Dow had climbed 170.82, or 1.38%, to 12,561.3.

Chain store sales results poured in this morning, sporting solid numbers for discounters in particular. Costco (Nasdaq:COST) same-store sales in May were up 9% and Wal-Mart (NYSE:WMT) reported a 3.9% rise in sales. Costco shares were up 1.9% after the opening, while Wal-Mart was up about 1.8%.

In economic news, weekly unemployment claims numbers clocked in better-than-expected. The weekly claims report headline figure came in at 357,000, which was much better than the forecasted 375,000. Typically, the weekly claims data is a minor blip on the numbers agenda, but with the monthly employment report on tap Friday, investors had a little extra interest in the numbers this week. Also, the ADP payroll figures were unexpectedly strong Wednesday, which raises hope that Friday’s big jobs release could carry a bullish surprise.

“We may not be experiencing a fast and furious deterioration in the U.S. job market, but the market is softening,” BMO Capital Markets economist Jennifer Lee wrote in a note today.

The dollar remains mixed against the euro and the yen, as crude oil pushed higher on the session, up roughly $1 to $123.24 for the July futures contract.

In large cap headlines, Verizon Communications (NYSE:VZ) said this morning that it will acquire regional wireless carrier Alltel Corp. for $28.1 billion in a deal that creates the country’s largest cell phone company.

Continental Airlines, Inc. (NYSE:CAL) said today that it will slash 3,000 jobs and decrease fourth-quarter domestic departures by 16%, bringing airline shares into the limelight. Shares of Continental Air rose roughly 6% midday, while United Airlines (Nasdaq:UAUA) and Northwest Airlines (NYSE:NWA) jumped 10% and 12% respectively from an analyst upgrade overnight.

Investors are keeping a close watch on financial stocks again today, particularly Lehman Bros. (NYSE:LEH), which is at the eye of the latest credit crunch storm. Lehman Bros. shares were up 3% in midday trading. Markets reacted surprisingly calmly to news of a possible downgrade of Ambac and MBIA, after the credit crunch reared its head earlier this week.

“Banks have been de-leveraging since the summer with the initial move to raise capital and now they are in the shedding assets stage,” Andy Busch, BMO Capital Markets foreign exchange strategist wrote in an email today. “Clearly, the world realizes now that we are past the ‘world is melting’ stage for the credit crunch and on to restructuring the financial sector.”

In broader industry groups, most groups are up midday; however, iron and steel, retail apparel and oil and gas are seeing the most upside. On the downside, water transportation, security systems and tobacco are edging lower.

In small caps headlines, shares of Tercica, Inc. (Nasdaq:TRCA) are rocketing 99% mid-session after the biopharmaceutical company said late Wednesday night that it will be bought out by international pharmaceutical company Ipsen, S.A. (Euronext: IPN) for $663 million, or $9.00 per share in cash. Vanda Pharmaceuticals Inc. (Nasdaq:VNDA) is up 15% midday after the developer of clinical-stage product candidates for central nervous system disorders said this morning that it made an exclusive alliance with Laboratory Corporation of America Holdings (NYSE:LH) to develop and commercialize a series of diagnostic tests for genetic markers.

In the theme of retail for the day, shopping mall-based specialty retailer Hot Topic Inc. (Nasdaq:HOTT) has gained 16% midday after reporting that comparable store sales declined 0.2% for the month of May, but was less than the 6.1% decline in May of 2007. Total net sales for the month increased 5% to $47.4 million.

On the downside, Pacific Booker Minerals Inc. (Amex:PBM) and Loud Technologies Inc. (Nasdaq:LTEC) are down 16% and 10.5% respectively on no apparent fresh news.