Small caps upbeat on banks despite Dow dip

Small-cap stocks edged higher Monday, bucking a downdraft in other large-cap index products as more good news in the banking arena surfaced. In addition, movement into smaller energy and commodity stocks provided a lift to the Russell 2000 (NYSE:IWM). The small-cap benchmark gained 4.55, or 0.66%, to 697.63.

Large-cap indices also were pulled down by a slump in pharmaceuticals, with Merck and Co. (NYSE:MRK) and Schering-Plough (NYSE:SGP) taking a dive ahead of earnings on news that the cholesterol drug Vitorin didn’t deliver the goods in a heart study. The slide in pharma shares came despite a jump in Genentech Inc. (NYSE:DNA) shares on news of a buyout offer from Swiss firm Roche Holdings.

In today’s action, large-cap stocks also appeared to be more troubled by a bounce in crude oil prices than did small-cap shares. Crude oil prices rose $2.16 dollars a barrel, or 1.6% to $131 as the market braced for the first storm event of the year. Tropical Storm Dolly could reach hurricane status Tuesday as it moves into the Gulf of Mexico, but for now the storm track seems unlikely to create a major supply disruption out of Gulf production.

Energy markets also likely were underpinned by a soft tone in the U.S. dollar to start the week. The greenback slipped about 0.5% against the euro and about 0.2% versus the yen, which provided a lift to some commodities markets, including gold and copper. The iPath GSCI Total Return commodities index was up about 1.5% on the day.

Once again, the bullish side of things was dominated by a surprise earnings report in the banking sector. Last week, Wells Fargo & Co. (NYSE:WFC), JP Morgan (NYSE:JPM) and Citigroup (NYSE:C) all beat the Street’s forecast and today saw Bank of America (NYSE:BAC) top expectations. The recent spate of good news on the banking front has helped to shore up negative sentiment toward . . .

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