Small caps rise as oil slides

Will Atkinson | Aug 05, 2008 11:57am EDT | Comment

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Small-cap stocks rose in midday trading as crude oil and other commodities continued a decline, which helped ease inflation jitters. At 11:56 a.m. ET, the Russell 2000 (NYSE:IWM) was up 10.68, or 1.52% at 714.82.

The Fed releases its policy statement at 2:15 p.m. ET. The central bank is widely expected to maintain its benchmark federal funds rate steady at 2%.

The ISM non-manufacturing survey came in at 49.5%, which was above the forecast of 48.5%. The survey still clocked in below the 50% level, which denotes expansion versus contraction in the services sector.

After plunging on Monday, crude oil prices continued to retreat on Tuesday, pulling back to $120.09 a barrel in recent trading. Crude oil prices are now about 18% below the record high set a few weeks ago, which should provide relief to businesses that have seen margins sliced away by soaring fuel costs. Because of falling oil prices, small-cap airline U.S. Airways Group Inc. (NYSE:LCC) was up about 9% in midday trading. Another benefactor of a drop in gasoline pump prices would be consumers, and investors hope those dollars flow into retailer pockets instead of being drained at the gas station.

The dollar is on a roll, climbing to seven-week highs this morning while jumping nearly 100 basis points against the euro. A strong dollar will suggest to many that overseas investors are moving into U.S. equities, and will also reflect relative strength in the U.S. economy versus other world markets.

Broad market sectors in rally mode midday included discount retailers, technology retailers, casinos, non-apparel textiles, fabricated plastics and rubber, airlines and apparel retailers. On the downside, gold, oil well services, oil and gas operations, metal mining, crops, water transportation and natural gas utilities were attracting sellers.

Individual small-caps on the move during the mid-session include 3Com Corp. (Nasdaq:COMS), which raised its first-quarter guidance before the opening bell. For the period ending Aug. 29, the Marlborough, Mass.-based company expects revenues between $335 million and $340 million, up from previous forecasts of $325 million and $330 million. Analysts are expecting revenues of $327.7 million.

Heartland Payment Systems, Inc. (NYSE:HPY) rose 11% after the Princeton, N.J.-based provider of bank card processing services said early Monday that its second-quarter profit totaled $11.5 million, or $0.30 per share, which met Wall Street’s expectation. Youbet.com, Inc. (Nasdaq:UBET) jumped 19% in midday trading after the online provider of horse racing content said late Monday that its second-quarter revenue totaled $29.2 million, which topped Wall Street’s expectation of $27.8 million a year earlier.

On the downside, James River Coal Company (Nasdaq:JRCC) is down 4% after posting a wider-than-expected net loss for the second quarter. Numerex Corp. (Nasdaq:NMRX) fell 20% in the midday after the Atlanta-based network technology company said early Tuesday that its second-quarter revenue clocked in at $17.4 million, which fell shy of Wall Street’s estimate of $21 million. During the year-earlier quarter, Numerex recorded $15.2 million in revenue. Numerex narrowed its quarterly loss to $0.2 million, or $0.01 per share, versus a loss of $0.3 million, or $0.02 per share, a year earlier. Wall Street analysts anticipated earnings of $0.03 per share.