Small caps slip into red, despite crude's gush lower

After opening higher, small caps have cascaded into the red midday, despite a continued sell off in crude from its record levels throughout the session and ahead of second-quarter earnings.

At 12:51 p.m. ET, the Russell 2000 (NYSE:IWM) was down 8.35, or 1.25%, at 657.43, while the Dow was down 63.67, or 0.56%, at 11,224.87.

After breaching a new record level of above $145 a barrel ahead of the July 4th weekend, crude oil futures pulled back sharply today. Crude is off $5.12 to approximately $140 a barrel midday. The commodity is still up some 50% for the year.

Oil prices are seeing downward pressure, as tensions in the Middle East are deflating in the minds of oil traders. Iran's foreign minister Manouchehr Mottaki said in an interview with CNN on Sunday that Iran is now assessing western governments with a new point of view. The Iranian foreign minister also suggested Iran might entertain the idea of a compromise with its nuclear program. Also, the country is expected to meet with the European Union's head of foreign policy surrounding the country’s nuclear program.

Oil also sold off as the dollar rallied. The greenback was buoyed by weak output numbers in Germany and the United Kingdom as well as resistance to sell the dollar in the midst of the G-8 leaders open summit meeting today in Japan.

“For the U.S. dollar, it's a question of a global economic race to the bottom between Japan, Europe and the United States,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, wrote in an email. “Whoever hits first and bounces wins.”  

Bottom fishers were prowling the Street earlier in the session, as valuations have been knocked down to the cheapest level since April. However, probable jitters that prelude second-quarter earnings results seemed to have superseded the low valuations that had clouded investors’ actions earlier today. Quarterly earnings results are expected to begin trickling in Tuesday, as Alcoa kicks off the season. Analysts expect this to be the fourth consecutive quarter of negative earnings. Analysts expect . . .

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