Stout retail sales, crude oil dip spark Russell bounce

Small-cap stocks shot higher on the opening, lifted by surprisingly stout retail sales, and an overnight slide in crude oil prices. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was up 10.99, or 1.53%, at 728.87.

Business inventories data came out at 10:00 a.m. ET and were above the forecast at 0.5%, but had little impact on the market, overshadowed by the earlier retail sales release.

It’s worth noting that the market was already in rally mode well before the retail sales report topped the forecast. Buying enthusiasm was fueled overnight by merger and acquisition talk surrounding Budweiser (NYSE:BUD), by a decline in crude oil prices and a rally in the U.S. dollar. Budweiser shares were up 6% shortly after the opening.

The headline retail sales figure came in up 1%, which was well clear of the forecast for a rise of 0.5%, and the ex-autos figure also topped the forecast, coming in at 1.2%, compared with the forecast of 0.7%. The upside surprise in retail sales was enough to overshadow a jump in unemployment claims, which climbed to 384,000 compared with the forecast of 370,000. It marked the highest point for continuing claims since February 2004. Also, the import price data hit the forecast on the nose, but it still reflected the largest three-month increase since October 1990.

By the time the market opened, immediate gains from the retail sales report were already trimmed as news of a shakeup in the power structure at Lehman Bros. (NYSE:LEH) pulled down the market, at least initially. Lehman Bros. shares were off about 5% in erratic trading shortly after the open, but bounced back into the green about 25 minutes after the open. Lehman shares have been sinking of late, and collapsed about 50% in just four weeks, while keeping the credit crunch fears on the front burner.

Despite all the negative news surrounding Lehman and ongoing worries about the credit crunch, Morgan Stanley analysts issued an upgrade for financial . . .

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