Small caps rise as broader market slips

Will Atkinson | Jul 21, 2008 2:10pm EDT | Comment

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Small-cap stocks are treading higher in afternoon trading, boosted by healthy earnings on the banking front and mergers and acquisitions news. At 2:07 p.m. ET, the Russell 2000 (NYSE:IWM) was up 2.96, or 0.43%, at 696.04. As oil prices rose and two pharmaceutical blue chips delayed reporting their quarterly results, the broader market was down in afternoon trading. The Dow lost 36.88, or 0.32%, to 11,459.69.

The leading indicators report, which came out at 10:00 a.m. ET, was in line with the forecast for a dip of 0.1% and had almost no immediate impact on the market. Overall, this is a very light week for economic data, but it will be a huge week for earnings results.

Pharmaceutical giants Merck & Co. (NYSE:MRK) and Schering-Plough Corp. (NYSE:SGP) delayed releasing their second-quarter earnings until after the closing to let researchers report results from a study of a cholesterol drug marketed by the two companies in a joint venture.

In what has become an ongoing trend, a major U.S. bank has posted better-than-expected earnings. This time around, the good news was from Bank of America (NYSE:BAC), as the nation’s largest retail bank topped the Street earnings forecast and jumped 7% in the afternoon session. The earnings surprise follows on the heels of better-than-expected results last week from Wells Fargo & Co. (NYSE:WFC), JP Morgan (NYSE:JPM) and Citigroup (NYSE:C).

Within the financial spectrum, government-sponsored mortgage lenders Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) were solidly higher this morning in the wake of weekend comments from Treasury Secretary Henry Paulson, who said that he expects Congress to quickly pass his bail-out program for GSEs. Paulson also said that 99% of the nation’s banks were healthy, but that the U.S. economy could be in a period of slow growth for “a while.”

In afternoon trading, crude oil is up $1.55 to $130.43 a barrel. The energy market was walking a tightrope between concerns over soft demand and weather in the Gulf of Mexico. The U.S. dollar is down against both the yen and the euro.

On the M&A front, Genentech (NYSE:DNA) shot some 13% higher this afternoon on news that Swiss firm Roche Holdings made an offer to buy all outstanding shares in DNA for more than $43 billion.

Broad market sectors on the rise this afternoon include coal, casinos, non-cyclical crops, construction and agricultural machinery, and oil and gas operation companies. On the downside, technology retailers, trucking, advertising, apparel retailers, insurers and office equipment companies were experiencing a sell-off.

Small caps in the news this afternoon include SemGroup Energy Partners LP (Nasdaq:SGLP) is up 10% after the Tulsa, Okla.-based operator of midstream energy assets said ahead of the opening that creditors had assumed control of its parent company. Real estate investment trust Franklin Street Properties Corp. (AMEX:FSP) is off 14% today after the company declared a quarterly dividend that was 39% lower than its previous quarterly dividend. Astec Industries, Inc. (Nasdaq:ASTE) is down 10% in afternoon trading after the Chattanooga, Tenn.-based maker of road construction equipment said early Monday that its second-quarter earnings clocked in at $21.1 million, or $0.93 per share, which fell shy of Wall Street’s expectation of earning $0.95 per share. SemGroup Holdings LP. Retail clothing company Charlotte Russe Holding Inc. (Nasdaq:CHIC) is down more than 21% in today’s trading after announcing its third-quarter earnings per share had dropped and that its CEO would be retiring.

On the upside among small caps, Medical device manufacturer ArthroCare Corporation (Nasdaq:ARTC) is down 38% after the company said ahead of the opening it would restate its financial results for 2006, 2007 and the most recent first quarter. Energy company Northern Oil & Gas Inc. (AMEX:NOG) is up 7% this afternoon after reporting ahead of the opening it had successfully completed three wells in North Dakota’s Bakken development.