Markets Are Flat as Small-Cap Stocks Signal Caution

Wall Street markets were little changed in early trading on Friday, indicating that the Dow and Standard & Poor's 500 could extend their decline to a third day as investors continued to be wary of weakness in small-cap names.

The Dow Jones industrial average fell 0.01 percent and the S.&P. 500 lost 0.08 percent. The Nasdaq composite index dropped 0.31 percent.

Small-cap stocks weighed on Wall Street on Thursday, as the Russell 2000 index briefly hit correction territory before pulling back. Investors were worried that prolonged weakness in small names could be a precursor to broader losses.

The Dow and S.&P. 500 had their biggest daily decline in a month on Thursday, and the S.&P. closed under its 50-day moving average for the first time since April 15. In a sign of increased investor caution, the CBOE volatility index had its biggest one-day bounce in a little more thana month on Thursday, and the spread between the spot VIX and the three-month VIX at one point tightened to its smallest since April 15.

While the Russell 2000 is currently 9.3 percent away from its early March record of 1,208.65 — less than the 10 percent decline that marks a correction — it has closed below its 200-day moving average in the last two session, a sign of weakening momentum.

In the latest economic data, housing starts jumped 13.2 percent in April while building permits hit their highest level in nearly six years, offering hope that the troubled housing market could be stabilizing.

J.C. Penney jumped 16.5 percent a day after posting an adjusted quarterly loss that was narrower than expected and sales that were above forecasts. Nordstrom also posted earnings above expectations; shares were up 10.7 percent.

S.&P. 500 futures fell 3.1 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 34 points and Nasdaq 100 futures lost 9.75 points.

In the tech space, Applied Materials reported revenue that was slightly ahead of expectations, while Autodesk raised its full-year revenue view. Both results came out after the market closed on Thursday.

Shares of Applied Materials rose 5.1 percent and Autodesk was up 5.3 percent.

Verizon Communications rose 1.6 percent a day after Warren Buffett's Berkshire Hathaway unveiled a new stake of 11 million shares in the company in a regulatory filing. The filings also showed that prominent hedge fund managers cut their exposure to high-profile Internet names like Netflix in the quarter.

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