Largest small-cap weekly decline since February

Barring a last minute stunner Monday, small-cap stocks appear set to finish the first half of 2008 with a whimper as the Russell 2000 (NYSE:IWM) closed out this week’s trading at the lowest level since early April while notching the largest one-week point decline since February. For the day, the Russell dipped 0.28, or 0.04%, to 698.14, walking a tightrope between rising crude oil and safe-haven money flows away from stocks versus oversold conditions and a rise in personal income data.

And it even took a pair of rose-colored glasses to see the good news on today’s personal income report, which clearly was tainted by stimulus checks reaching consumer wallets. The headline figure on personal income was up 1.9%, but after adjustments for the stimulus payout, the real figure was much less enticing.

“Perusing some of the detail, households seemed to want to escape from reality in May by stepping up their purchases of alcoholic beverages to consume in the privacy of their own (or bank-owned) homes (+1.29%), by going to the movies (+24.9%), by investing their tax rebates at blackjack tables (+2.3%) or simply boarding an airplane to get out of town (+2.7%),” Paul Kasriel, chief economist with Northern Trust, said in an email. “Come the third quarter, when the fiscal stimulus has dissipated, so will personal income and consumer spending increases,” he said.

Consumer sentiment as told through the Michigan survey slipped to a fresh 28-year low. With national pump prices north of $4 dollars a gallon, food prices steadily rising, home values still sinking and unemployment surging, it’s no surprise that consumers are in a dour . . .

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