Small Caps Lead Rally Despite Jobless Claims

Stocks opened in the green this morning and have held their own through Thursday afternoon on news that Wells Fargo issued a surprise profit announcement.

At 12:25 pm ET, the Russell 2000 (NYSE:IWM) is up 18.34, or 2.64%, at 460.46, while the Dow is up 2.22% and the S&P 500 is up 2.53%.

New employment data out today did little tamper the strong rally. New jobless claims fell more than expected to 654,000, while continuing claims set an 11th straight record. The total number of laid-off Americans receiving unemployment rose to 5.84 million, from 5.75 million, the most on record since 1967.

Small-cap A-Power Energy Generation Systems (Nasdaq:APWR) is up a whopping 33% after reporting a surge in Q4 profits. Cardiome Pharma (Nasdaq:CRME) is also up 24% after announcing a licensing agreement for Vernakalant, an investigational candidate for the treatment of atrial fibrillation.

******The minutes from the last FOMC meeting were released Wednesday. You might recall that was the meeting where Fed Chairman Ben Bernanke announced that the Federal Reserve would start buying $1.13 trillion worth of Treasury bills, corporate bonds and consumer debt.

Bernanke didn’t say at the time he was proposing the biggest Fed balance sheet expansion in history, but the members of the Fed lowered their estimates for economic recovery significantly.

The Fed had expected growth to return in the second half of this year and unemployment to top out around 8.8%. At the last meeting, dismal numbers from the start of 2009 prompted recovery expectations to be pushed into 2010, along with upward adjustments in unemployment number expectations.

It makes sense that the Fed took a more negative view of the economy. Why else would it take such a radical step as the balance sheet expansion? And I’ve been saying all along that unemployment will hit double digits before this recession is over.

What is interesting is what the Fed will say next. Bernanke has made some bullish comments over the last few weeks—comments that are somewhat contrary to the minutes from the last FOMC meeting. Perhaps Bernanake was just talking the market up? Or maybe the Fed overreacted to the dismal January numbers?

*****I like to use oil prices as a gauge for economic recovery expectations. And with oil locked into the $50 per barrel area, the market’s expectation seems to mirror the Fed’s: the economy may have seen the worst, but it’s not improving quickly.

Crude inventories are growing. Currently we have 15% more than last year. And while gasoline use is down from last year, it’s on the rise. Analysts are expecting relatively low prices to encourage more driving this summer, which, of course, would cause prices to rise.

Still, there is anecdotal evidence that Americans are spending a bit more money. Bed Bath and Beyond (Nasdaq:BBBY) and restaurant Ruby Tuesday (NYSE:RT) put up better-than-expected earnings numbers yesterday. Ruby Tuesday did especially well: its stock jumped 55% Wednesday.

Never underestimate the American consumer …

*****Wells Fargo (NYSE:WFC) is up 33% this morning on an earnings blowout. That’s good for stocks in general, but don’t forget, it takes money to make money and Wells got $25 billion in TARP money.

No doubt that TARP money helped Wells Fargo. But the market likes it and that’s what’s important now.

Also, bullish news should be good for oil prices. All the oil stock from the Special “Oil Shock” issue of SmallCapInvestor PRO are showing gains and should have more coming. Click HERE for details on these stocks and coming “Oil Shock” profits.
 
*****As always, I want to hear your questions, comments and jokes. Email me at editorial@247investor.com.

Have a great Easter weekend, I’ll talk to you on Monday.