Russell slips as crude rallies on Gustav

Kevin Pendley | Aug 29, 2008 10:13am EDT | Comment

Rating: Unrated [rate it]

Small-cap stocks edged lower on the opening, pulled down by a big rally in crude oil futures and a mixed bag on this morning’s batch of economic data. At 9:59 a.m. ET, the Russell 2000 (NYSE:IWM) was down 3.91, or 0.52%, at 743.88.

The Michigan sentiment survey came in at 63.0, which was just a tad above the forecast of 62. There was very little stock market response to the Michigan number. The Chicago Purchasing Manager’s Survey topped the forecast in a big way, coming in at 57.9, compared with the projection of 50.0. The stock market rallied off early lows after the stronger-than-expected number, but the bounce off those lows had very little staying power.

Earlier, the personal income report came in below expectations, with the headline figure down 0.7%, compared with expectations for a flat reading. Spending patterns also tailed off as the impact of government stimulus checks faded and the inflation component of the report (the year-over-year PCE price index) was at the highest point in 17 years.

Crude oil prices shot higher into the stock market opening, climbing some $3 a barrel back above $118 as the market braced for Gustav to slam into the Louisiana coast sometime within the next four days. The killer storm ripped through Caribbean, taking nearly 70 lives in the process, and has already prompted a shutdown of energy platforms in the Gulf ahead of the holiday weekend.

Speaking of the holiday, cash trading on stocks will hold normal hours today ahead of Monday’s holiday, but foreign exchange and interest rate futures will close early today at 1:00 p.m. ET, which could start to further taper off volume this afternoon.

The U.S. dollar was weak this morning, down about 0.8% against the yen and about 0.2% versus the euro, which will act as a positive for commodity markets and a negative for equities.

Tech stocks were struggling this morning, with the second-largest PC maker — Dell Inc. (Nasdaq:DELL) tumbling 12% after reporting earnings overnight. Losses in the tech-laden Nasdaq 100 were about double on a percentage basis over other major indices.

Broad market sectors on the decline included thrifts and mortgage finance firms, as the recent big rally in Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) stalled today. FNM was off about 7% shortly after the open, while FRE was down nearly 8%. Paper products, computer hardware and computer storage stocks were also on the decline, as were semiconductors and Internet retail stocks. On the upside, homebuilders, managed health care, health-care facilities and apparel retail stocks were among the top performers.

Individual small caps of note included Magma Design Automation Inc. (Nasdaq:LAVA), which was off almost 10% following earnings news. Sigma Designs Inc. (Nasdaq:SIGM) was down almost 9%, also tied to quarterly results. On the upside, Targanta Therapeutics Corp. (Nasdaq:TARG), rallied 11%, adding to Thursday’s big rally, but volume was quite thin on the move.

As the day progresses, look for support for the Russell approaching 742, then at 734. If the market can start to charge higher again, there is resistance at 750 and 756.