No one shops for small caps today, as few shop at retailers

Jennifer Schonberger | Aug 13, 2008 12:27pm EDT | Comment

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The Russell 2000 has slipped to its lows on the session midday, as a weak July retail sales report and a rebound in crude oil prices have kept small caps submerged in the red.

At 12:35 p.m. ET, the Russell 2000 (NYSE:IWM) had skidded 6.87, or 0.92%, at 738.07, while the Dow slumped 165.2, or 1.42%, to 11,477.27.

The Census Bureau reported this morning that retail sales dropped 0.1% in July, down from June’s 0.1% uptick and the weakest in five months. Weak auto sales were the main culprit that dragged down sales, as a soft economy and sky high gas prices continued to take a toll on demand for cars. Sans autos, retail sales would have posted a 0.5% increase for July. However, even excluding auto sales, retail sales would have only been buoyed by consumption of gas on the part of higher prices, not higher demand.

“This sales report marks only the beginning of the third quarter and though it is not looking very good for U.S. consumers, it wasn't quite as bad as expected,” BMO Capital Markets economist Jennifer Lee wrote in a note today. “But we could be seeing some final effects of the rebate checks here, and as they fade, real consumer spending likely fell for in Q3, the first in about 17 years.”

In other economic news, import prices soared 1.7%, which was above the forecast, and year-over-year prices were up 21.6%, the highest rate in 26 years.

The business inventory report came out at plus 0.7%, which was above the forecast for a rise of 0.4%. However, this data series is somewhat dated (June figures) and tends to have very little lasting impact on stock market traders.

After a red week, crude oil is rebounding after the government reported a decline in U.S. crude stockpiles, which was also below the expectation that supplies remain level. A barrel of light sweet crude rose $2.40 to $115 and change midday.

As crude is on the assent today, the dollar remains mixed against the euro and the yen, appreciating to $1.4883 against the euro and depreciating to 108.6 against the yen.

In large cap corporate news, Macy’s (NYSE:M) is slipping after the retailer said today that second-quarter earnings declined and that it is lowering its full year outlook on account of the crippled consumer.

Deere (NYSE:DE) posted a profit and saw sales shoot up 17% in the quarter; however, earnings fell short of the consensus on Wall Street. The agriculture equipment manufacturer saw international sales increase nicely; however raw material costs and a decline in its consumer, construction and forestry equipment segments pulled down results.

CVS Caremark (NYSE:CVS) said after Tuesday’s close that it will acquire Longs Drug Stores for $2.9 billion, or $71.50 a share, which is a 32% premium over the California drug store’s closing price on Tuesday.

Broader industry groups leading the market lower include tires, autos and airlines, while coal, platinum and precious metal, gold mining and iron and steel are among the few gaining ground mid-session.

In small cap corporate news, specialty tween retailer Tween Brands Inc. (NYSE: TWB) has plunged 44% after reporting that it swung to a loss in the second quarter on slackened demand, falling short of the consensus on Wall Street. Adding to the selling pressure Citigroup and FBR Capital downgraded the retailer to “sell” and “underperform” respectively.

Shares of HQ Sustainable Maritime Industries, Inc. (Amex:HQS) have plummeted 28% midday after the Chinese processor of organic tilapia and marine-bio products posted second-quarter sales that missed estimates and recorded a loss compared with a profit in the year-ago period. Gross profit declined a hefty 24% due to increased prices for live tilapia, increases in labor and energy costs and a continued softening of the U.S. Dollar.

On the upside, shares of REIS, Inc. (Nasdaq:REIS) have rocketed 64% midday after the provider of commercial real estate market information said midday that CoStar Group, Inc. (Nasdaq:CSGP) has made a proposal to acquire the firm for $8.75 per share.