Small caps coast in the green

Jennifer Schonberger | Jul 23, 2008 12:54pm EDT | Comment

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After falling off slightly after the opening, small-cap stocks staged a swift rally but then deflated somewhat as oil continued to pull back for a second straight trading session amid mixed corporate earnings reports and as President Bush and the House came to an agreement on a housing bail-out plan.

At 12:30 p.m. ET, the Russell 2000 (NYSE:IWM) was up 0.68, or 0.09%, at 717.50 amidst a broad market rally. The Dow was up 4.39, or 0.04%, to 11,606.89, while the tech heavy Nasdaq gained 9.1, or 0.39%, to 2,313.06 as investors welcomed the deflation in oil prices, which may ease pressure on the consumer and businesses.

Crude oil prices slipped roughly $0.60 dollars a barrel to $127 midday, marking the second consecutive day the commodity has lost its mojo. Today, an increase in U.S. gasoline stockpiles added to the downward pressure on crude. The energy market has been sinking this week as Hurricane Dolly veers away from key production areas in the Gulf of Mexico and on worries about demand for high-priced crude oil amid sluggish economic conditions in the United States and new usage curbs in China.

As crude oil prices have slipped in recent sessions, the U.S. dollar is turning green again, rising against the euro and the yen in mid-day action. The assent in oil, has contributed to the dollars demise this past year, so naturally that correlation has reversed itself today. A stronger dollar often has a bearish impact on global commodity values since so many products are priced in dollars. Also on the commodities front, grains markets are expected to trade sharply lower today amid improving Midwest weather and the firm dollar tone.

President Bush dropped his veto against the House’s housing package that bails out struggling homeowners by offering $3.9 billion for areas containing the most foreclosures. The House is expected to vote on the bill as early as today. Additionally, lawmakers came to a mutual agreement that permits Treasury Secretary Henry Paulson to rescue mortgage providers Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the backbones of our domestic mortgage lending landscape. Fannie Mae and Freddie Mac gained 12% and 9%, respectively, midday.

In large-cap corporate headlines, PepsiCo (NYSE:PEP) posted a 9% uptick in its bottom-line for the second quarter, as the snacks and drinks company experienced robust growth internationally bolstered by an anemic dollar. The company also noted that it intends to buy back an additional $1 billion in shares this year. McDonald’s Corp. (NYSE:MCD) clocked higher second-quarter earnings, topping forecasts, as the Fast-food giant’s business was buoyed by overseas sales. Pharmaceutical juggernaut Pfizer Inc. (NYSE:PFE), said that net income for the second quarter more than doubled.

Conversely, Costco (Nasdaq:COST) warned it would miss the Street’s forecast, as inflation from energy costs are expected to weigh on the discount retailer’s results. Boeing (NYSE:BA) reported a larger-than-anticipated 19% decline in second-quarter earnings due to a charge associated with a military plane contract delay.

Financials staged a rally again today; as investors perceive a bottom may be near on the heels of ghastly write downs in recent earnings reports from the likes of Wachovia. Financials have gained 31% in the past five trading sessions.

In broader industry groups, advertising, computer storage devices and insurance were making strides, while trucking, gold and silver and oil and gas exploration and production were under pressure mid-session.

In small cap headlines, computer software manufacturer Sonic Solutions Inc. (Nasdaq:SNIC) slipped 16% midday after analysts at J.P. Morgan downgraded the company before the opening to “neutral” from “overweight.” Independent Bank Corporation (Nasdaq:IBCP) has spiked some 27% mid-session after reporting a boost to its second-quarter earnings after the close on Tuesday. On the downside, SeaBright Insurance Holdings Inc. (Nasdaq:SEAB) sinking 16% midday after Friedman Billings Ramsey downgraded the company to “market perform” from “outperform” ahead of the opening. The research firm cut the price target to $16 from $23. Additionally, SeaBright reported lower second-quarter earnings after Tuesday’s close.