Higher open projected after strong GDP report

Kevin Pendley | Aug 28, 2008 9:01am EDT | Comment

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Small-cap stocks are expected to open higher, boosted by an upside surprise on economic growth for the second quarter, which will help investors once again look beyond another surge in crude oil prices. The Russell 2000 (NYSE:IWM) pushed from flat to up about 0.4% after the data, which suggests an opening near 735.50.

GDP was pegged at plus 3.3% for the second quarter, well clear of the 2.7% forecast, boosted by strong exports, which were up 13.2%. At the same time that GDP numbers came out, the market also received data on weekly unemployment claims, which met the forecast at 425,000.

The immediate market response to the numbers was a five-handle upside rise in S&P 500 futures, which moved from slightly lower territory to higher ground. In addition, the dollar firmed from down 0.2% against the euro and yen to near unchanged levels. Perhaps the biggest move was seen in Treasury markets, with bonds and notes sinking in response to the stronger-than-expected GDP number.

Crude oil futures continued to push higher overnight, climbing toward $120 dollars a barrel amid concerns about the path of Tropical Storm Gustav, which could threaten energy production in the Gulf of Mexico. Although the weather system was downgraded to a tropical storm, it is expected to regain hurricane status soon and appears to be trekking toward key crude oil and natural gas areas in the Gulf.

Stocks on the radar screen overnight included Sears Holdings Corp. (Nasdaq:SHLD), which was down about 1.3% after quarterly profits missed the forecast. However, there were plenty of retailers on the rise overnight, including Tiffany Inc. (NYSE:TIF), which rallied more than 5% on solid results. Also, Jo-Ann Stores Inc. (NYSE:JAS) jumped some 8% on earnings news.

On the financial side of things, Fannie Mae (NYSE:FNM) rallied some 5% in after-hours action on reports of management changes. FNM has been in rally mode in recent days on hopes that the embattled GSE firm is in a better financial position than many had feared. Also, MBIA Inc. (NYSE:MBI) jumped some 9% as the firm unveiled plans to reinsure $184 billion in muni bonds that were backed by FGIC Corp.

The chart picture for small caps brightened after Wednesday’s rise back above 726, but prices remain bottled within a trading range. In addition, Wednesday’s bounce was accomplished on thin volume, which takes some of the edge off the move. From a short-term perspective today, look for resistance at 739, then at 748. On the downside, support is pegged at 726, then at 720.50.