Small caps continue climb

Small caps edged down during the first 15 minutes of trading, but have climbed in midday trading after an overnight drop in crude oil and rising retail stocks encouraged buyers. Although they are now increasing, small-cap stocks fluctuated during the first hour of trading as Wall Street digested newly released unemployment data and the government’s estimate of first-quarter economic growth.

At 12:42 p.m. ET, the Russell 2000 (NYSE:IWM) was up 10.92, or 1.48%, at 749.38. The small-cap index initially met resistance at the 743 notch, but broke through during the third hour of Thursday’s session.

In economic news, the Labor Department said jobless claims came in at 372,000, above the forecasted 370,000 claims and last week’s figure was revised upward by 3,000 to 368,000. Also, this morning, the Commerce Department said its reading of the first-quarter GDP was for a rise of 0.9%, beating the department’s earlier estimate of 0.6%.

“The bottom line is that economic growth remained very weak at the beginning of the year. These data are ancient history, as Q2 is nearly two-thirds over,” Steven Wood, chief economist with Insight Economics, said in an email. “Data released so far for April and May suggest that Q2 growth will also be very soft and perhaps even negative. There is still a definite risk for an outright contraction in Q2.”

Crude oil prices declined overnight and continued to push lower to $128.68 a barrel in midday action. Lower crude prices could offset sell-offs related to disappointing economic reports, soaring prices at the gas pump and grocery store, declining home values and tepid consumer spending.

The U.S. dollar gained on the euro at $1.5505 per euro compared with Wednesday’s close of $1.5645 per euro. The greenback also gained ground on the yen. Federal Reserve Chairman Ben Bernanke speaks later this afternoon. Bernanke is slated to talk about “liquidity provisions” at 2:30 p.m. ET.

“What happens if the U.S. dollar actually sustains a rally and oil comes off? Won't there be less demand for [government] intervention and less demand to buy US Treasury securities?” Andy Busch, global foreign exchange strategist for BMO Capital Markets, wrote in an email. “If bills held outside the Fed and foreign central banks have doubled since the end of summer 2007 and artificially kept U.S. rates low, then what happens if this demand either slows or drops dramatically?  U.S. rates soar and the US dollar gains ground which further fuels higher rates.  While I realize it's hard to imagine a positive scenario for a U.S. dollar rally, maybe a negative scenario fits everyone's mind frame better.”

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below