Small caps erase losses; rate cuts versus soft profit news
Small-cap stocks started out Thursday’s trading session in the red, but quickly bounded back into positive territory showing similar resilience to “bad” news that was seen during Wednesday’s rise. So far today, investors were juggling a raft of disappointing profit reports against the bullish scenario from a fresh batch of rate cuts around the world. At 10:03 a.m. ET, the Russell 2000 (NYSE:IWM) was up 7.20, or 1.59%, at 460.96.
Several big companies announced plans to reduce workforce numbers this morning, reinforcing the concept that the jobs picture will get uglier before it gets better -- a numbing thought ahead of Friday’s big monthly employment release. There was a bevy of companies that either missed the profit forecast this morning, or lowered the outlook, but the one that seemed to spark the biggest response in pre-market trading was E I du Pont de Nemours and Co. (NYSE:DD), as chemical manufacturer DuPont said it now expects to lose money this quarter versus a previous projection for a profit. In addition, DuPont said it would cut 2,500 jobs. AT&T (NYSE:T) said it would slash some 12,000 jobs.
Economic data on weekly unemployment claims came in better than feared, but the expectations were so terrible that the upside surprise on claims didn’t have much kick. After all, the headline figure still came in above 500,000, which is a big number historically. What’s more, the number of Americans extending unemployment insurance because they can’t find a job rose to the highest point in 26 years. Simply put, firms are laying off employees and they can’t find work. The factory orders report this morning came in at minus 5.1%, which was worse than the forecast for a drop of 3.8% and which was the biggest decline in more than eight years.
In overnight action, central bankers around the world were busy slashing interest rates to help bolster sagging economic activity. The European Central Bank sliced 100 basis points off their benchmark rate, bringing it down to 2%. Meanwhile, Sweden’s Riksbank lopped 175 bps off their key lending rate, while New Zealand whacked off 150 bps and the Bank of England trimmed 100 bps. Even Indonesian official lower rates for the first time in a year.
Auto industry executives are back on Capital Hill today to talk about restructuring efforts aimed at getting a bail-out package from lawmakers. The general sense among market watchers is that a package in the $25-billion range is likely. General Motors Corp. (NYSE:GM) shares were down 4% shortly after the open, while Ford Motor Co. (NYSE:F) was down 1%.
Perhaps lost in the shuffle of all the global rate cut news, the latest economic data and the automaker plight is the recent batch of monthly retail sales numbers. So far this morning, Wal-Mart Stores Inc. (NYSE:WMT) beat the forecast and WMT shares were up about 2%. Meanwhile, Target Corporation (NYSE:TGT) missed the forecast was down 2%.
Individual small caps on the move this morning include Collective Brands Inc. (NYSE:PSS), which rose 14% as the parent of Payless Shoes reported solid quarterly results. Homebuilder Lennar Corp. (NYSE:LEN) was on a roll again this morning, rising 13%. Homebuilder stocks have been a key driving force on rallies the last couple of days, boosted by optimism that a reduction in long-term interest rates will resuscitate refinance and housing activity. Along that theme, Meritage Homes Corp. (NYSE:MTH) was up 11% early this morning.
On the downside was Movado Group Inc. (NYSE:MOV), as the boutique operator and fashion distributor took a hit after releasing earnings. Dynamex Inc. (Nasdaq:DDMX) dropped 21%, gapping lower as the delivery and logistics provider also took a lump after reporting earnings.
Looking at the chart picture today, the market is basically trapped in a range defined by Friday’s high and Monday’s low. A breakout from that range is needed to spark the next notable move, but it might take a big surprise on Friday’s jobs report to snap those range constrictions. As for today’s trading, look for support at 442, 433 and 424.50. Meanwhile, resistance on a bounce is at 452.50, 464 and the key point is up at 473.
Several big companies announced plans to reduce workforce numbers this morning, reinforcing the concept that the jobs picture will get uglier before it gets better -- a numbing thought ahead of Friday’s big monthly employment release. There was a bevy of companies that either missed the profit forecast this morning, or lowered the outlook, but the one that seemed to spark the biggest response in pre-market trading was E I du Pont de Nemours and Co. (NYSE:DD), as chemical manufacturer DuPont said it now expects to lose money this quarter versus a previous projection for a profit. In addition, DuPont said it would cut 2,500 jobs. AT&T (NYSE:T) said it would slash some 12,000 jobs.
Economic data on weekly unemployment claims came in better than feared, but the expectations were so terrible that the upside surprise on claims didn’t have much kick. After all, the headline figure still came in above 500,000, which is a big number historically. What’s more, the number of Americans extending unemployment insurance because they can’t find a job rose to the highest point in 26 years. Simply put, firms are laying off employees and they can’t find work. The factory orders report this morning came in at minus 5.1%, which was worse than the forecast for a drop of 3.8% and which was the biggest decline in more than eight years.
In overnight action, central bankers around the world were busy slashing interest rates to help bolster sagging economic activity. The European Central Bank sliced 100 basis points off their benchmark rate, bringing it down to 2%. Meanwhile, Sweden’s Riksbank lopped 175 bps off their key lending rate, while New Zealand whacked off 150 bps and the Bank of England trimmed 100 bps. Even Indonesian official lower rates for the first time in a year.
Auto industry executives are back on Capital Hill today to talk about restructuring efforts aimed at getting a bail-out package from lawmakers. The general sense among market watchers is that a package in the $25-billion range is likely. General Motors Corp. (NYSE:GM) shares were down 4% shortly after the open, while Ford Motor Co. (NYSE:F) was down 1%.
Perhaps lost in the shuffle of all the global rate cut news, the latest economic data and the automaker plight is the recent batch of monthly retail sales numbers. So far this morning, Wal-Mart Stores Inc. (NYSE:WMT) beat the forecast and WMT shares were up about 2%. Meanwhile, Target Corporation (NYSE:TGT) missed the forecast was down 2%.
Individual small caps on the move this morning include Collective Brands Inc. (NYSE:PSS), which rose 14% as the parent of Payless Shoes reported solid quarterly results. Homebuilder Lennar Corp. (NYSE:LEN) was on a roll again this morning, rising 13%. Homebuilder stocks have been a key driving force on rallies the last couple of days, boosted by optimism that a reduction in long-term interest rates will resuscitate refinance and housing activity. Along that theme, Meritage Homes Corp. (NYSE:MTH) was up 11% early this morning.
On the downside was Movado Group Inc. (NYSE:MOV), as the boutique operator and fashion distributor took a hit after releasing earnings. Dynamex Inc. (Nasdaq:DDMX) dropped 21%, gapping lower as the delivery and logistics provider also took a lump after reporting earnings.
Looking at the chart picture today, the market is basically trapped in a range defined by Friday’s high and Monday’s low. A breakout from that range is needed to spark the next notable move, but it might take a big surprise on Friday’s jobs report to snap those range constrictions. As for today’s trading, look for support at 442, 433 and 424.50. Meanwhile, resistance on a bounce is at 452.50, 464 and the key point is up at 473.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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