Small caps sink as rising crude oil takes a toll

Small-cap stocks took a tumble Wednesday, rattled by another record high in crude oil prices which could stunt an already tenuous economic recovery in the U.S by crimping consumer spending and raising costs for businesses. The Russell 2000 (NYSE:IWM) lost 13.57, or 1.86%, closing at 716.21.

The relentless advance in crude oil prices saw the market shoot up to $123 dollars a barrel Wednesday, stoked by ongoing jitters about supply out of Africa and geopolitical tensions in the Middle East. In addition, tight diesel stocks on the weekly Energy Information Administration report fueled additional buying in the energy arena. With national pump prices around $3.50 a gallon and the summer driving season peak still ahead of us, consumers likely will be in a dour mood about the prospect of even higher prices on the horizon.

Equities got an early boost this morning into the opening when the productivity report came in above expectations, up 2.2% versus the forecast for a gain of 1.6%. The market has seen a run of recent economic numbers that have topped the projection, but with equities knocking on the door of four-month highs, it didn’t appear to be enough good news to sustain the run.

In addition, the U.S. dollar shot higher against the euro, which has been a supportive element for equities lately — on the rare instances when the greenback mounts a rise against the euro.

However, some traders saw the dollar’s gain as being more indicative . . .

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