Bears come out in full force against small caps

After swooning out of the gate, the Russell 2000 has pulled off its lows of the session, but still remains besieged in the red mid-session. A spike in unemployment claims, disconcerting July retail sales, an uptick in oil prices and gloomy results from insurance juggernaut American Insurance Group (NYSE:AIG) pushed small caps lower, while a better-than-expected pending home sales report served to taper losses.

At 12:41 p.m. ET, the Russell 2000 (NYSE:IWM) had slipped 4.67, or 0.64% to 721.23, while the Dow has given back 94.93, or 0.81%, to 11,561.14.

The Labor Department reported this morning that the weekly claims report spiked to 455,000, marking the largest weekly figure since March 2002. Adding insult to injury, the number was substantially above the forecast of 420,000 and adds to the sobering picture of a weaker labor market. The continuing claims number rose to a fresh cycle high at 3.311 million, the highest level since December 2003.

“Continuing claims, which are inversely related to job creation, jumped this week to their highest level since December 2003,” Steven Wood, chief economist with Insight Economics, said in an email. “This is an indication that hiring has weakened.”

In other economic news, the National Association of Realtors reported this morning that pending home sales rose 5.3% to 89 from May’s reduced figure of 84.5. Economists were expecting the index to slide to 84.3. The rosier-than-anticipated report helped to pull stocks off their lows of the session. However, despite a gain during June, the number is still 12% lower than last year.

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