Small caps rally as crude sinks, sentiment data improves

Small-cap stocks went into rally mode Tuesday, quickly reclaiming lost ground from Monday’s downward spiral as crude oil tanked and consumer sentiment perked up from the abyss. The Russell 2000 (NYSE:IWM) closed up 18.44, or 2.65%, at 714.55, generating the 10th-largest one-day rally of the year. This also marked the fourth one-day gain in July of 2% or more. The only other month this year that saw that many 2% rally days was in March — when the market forged an important bottom.

During the session, crude oil prices shed more than $3 dollars a barrel, retreating below $121 while approaching three-month lows. By the close, crude was off $2.54 dollars to $122.19. Concern about the demand side of the equation continues to discourage energy bulls, and OPEC president Chakib Khelil said that crude oil prices could tumble to the $70- to $80-range if the U.S. dollar strengthens and if political tensions ease in the Middle East. The U.S. dollar jumped to four-week highs against the euro, heating up talk that the short dollar/long energy hedge fund trade was still being unwound. The greenback was on a roll against the yen, rising to four-week highs, while gaining about 0.6%.

The recent collapse in crude oil prices (crude is off some 17% from the July peak) has been a welcome sign to stock market investors who worried that persistent gains in the energy market would have crippled consumer spending and thwarted any recovery attempts in the U.S. economy — especially with the housing market still reeling.

Speaking of the housing situation, the Case-Shiller Home Price Index came out today. To no one’s surprise, the Index slipped to record low levels and suggested that home prices were at four-year lows. However, the report was in line with expectations, the data is for the May time frame, and was completely overshadowed by the consumer confidence report, which came in well above expectations. The headline figure for consumer confidence was at 51.9, which easily topped the analyst forecast of 50. It should be noted that 51.9 is still a low number historically, but with crude oil sinking, the dollar surging and several key economic numbers still on tap this week, a good sentiment figure simply made it even more difficult for the shorts to . . .

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below