Better-than-expected payrolls data and the Federal Reserve’s extension of credit to Wall Street banks buoyed small caps for the morning and early afternoon; however, they have since succumbed to the red tide, as oil has reversed course and marched higher.

At 1:40 p.m. ET, the Russell 2000 (NYSE:IWM) had slipped 3.19, or 0.45%, to 711.36. While the Dow remained in green territory, up 68.64, or 0.60%, to 11, 466, it is sliding from intra-session highs.

A positive surprise from the ADP Employment Report this morning bolstered investors’ expectations for the Labor Department’s monthly employment report due out Friday.

The ADP report showed an uptick of 9,000 in non-farm payroll jobs, substantially above the forecast for a decline of 58,000 non-farm payroll jobs. Historically, the ADP report carried muster, as it used to correlate with the Labor Department’s employment report; however that correlation has broken down over the last year and the ADP figure has tended to only be a good predictor when it falls near the consensus estimate. “It seems to be too optimistic in relation to the data coming from the BLS,” Bill Greiner, chief investment officer for UMB Asset Management and UMB Bank, and chief economist for Scout Investment Advisors, said. “This has been the case for some time.” Economists are expecting a slide of 75,000 jobs in Friday’s employment report from the Labor Department.

In other economic news, the weekly MBA Mortgage Applications Survey clocked in this morning at minus 14.1, the lowest level since December 2001. The combination of weak home sales and slumping home equity continue to take a toll on mortgage applications, despite moderating mortgage rates.

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