Russell pares Thursday’s gains on dismal economic data, oil

Jennifer Schonberger | Aug 29, 2008 12:29pm EDT | Comment

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The Russell 2000 is sinking on the session, as a grisly personal income report, oil’s assent, and Dell’s disappointing earnings sucked the wind out of Thursday’s equity rally—though on light volume ahead of the holiday weekend.

At 12:26 p.m. ET, the Russell 2000 (NYSE:IWM) was down 9.29, or 1.24%, to 738.58, close to its lows on the session.

The session kicked off to a bad start after the government issued a report stating that personal incomes plunged by the largest amount in three years. Personal incomes slid 0.7%, below expectations for a drop of 0.1%.

Adding insult to injury, consumer spending was squeezed, as the impact of government stimulus checks evaporated and the inflation component of the report (the year-over-year PCE price index) surged to the highest in 17 years. Spending rose 0.2%, compared with a 0.4% decline in July and the 0.6%, uptick in June.

In other economic news, the Michigan sentiment survey clocked in at 63, slightly above the forecast of 62; while the Chicago Purchasing Manager’s Survey topped the forecast at 57.9, compared with the projection of 50. The market rallied off early lows after that stronger-than-expected number, however, the bounce was not sustainable.

Also dragging the market lower, crude oil prices gushed higher, as concerns of Gustav’s unwelcome arrival to Louisiana’s coast and the possible damage to oil refiners that could be caused swirled through the oil market. The killer storm has already prompted a shutdown of energy platforms in the Gulf ahead of the holiday weekend. A barrel of light sweet crude rose $1.96 to $117.55 midday.

As crude has spiked the dollar was mixed against the euro and the yen midday, helping to keep equities submerged in the red.

In corporate earnings news, Dell Inc. (Nasdaq:DELL), the second-biggest PC maker behind Hewlett Packard, reported after Thursday’s close that earnings plummeted 17%, calling into question the strength of global business spending going forth. Following the earnings news Deutsche Bank slashed its price target on the company.

In broader industry groups, renewable energy, home construction and railroads were among the few groups rallying, while mortgage finance, paper and forestry were leading the market lower.

In small caps headlines, Chinese online provider of financial information China Finance Online Co. Ltd. (Nasdaq:JRJC) reported second-quarter results late Thursday that bested the consensus on Wall Street. Revenues surged 156% year-over-year due to growth in subscription service fees from individual customers, which grew to 89% of revenues in the quarter.

Shares of Magma Design Automation Inc. (Nasdaq:LAVA) have slid 9% after reporting late Thursday that its fiscal first-quarter top and bottom lines slid year-over-year as the provider of chip design software grappled with a more difficult-than-anticipated business environment. Magma also lowered its full-year guidance as it intends to amend its business model.

Internet survey provider Greenfield Online Inc. (Nasdaq:SRVY) said early this morning that it will be acquired by Microsoft Corp. (Nasdaq:MSFT) for $486 million in cash, or $17.50 per share. The company’s agreement to be acquired by Microsoft comes after it turned down a lower buyout offer from buyout firm Quadrangle. Shares were mostly flat midday.

Shares of Wind River Systems Inc. (Nasdaq:WIND) have fallen 9.5% after the company announced it expects its third-quarter earnings to fall below analysts' expectations.