Tech stocks, small caps pace slide; econ data sloppy
Small-cap stocks continued to alternate up and down days, with today being a designated “down” day for the market. Selling interest was stoked by terrible results for technology maven Microsoft and by a batch of fresh economic data that suggested the recession is still clouding the outlook. The Russell 2000 (NYSE:IWM) closed down 13.92, or 3.05%, at 442.85, and is now down 11.3% for the year. Meanwhile, the Dow is off 7.4% for the year while the S&P 500 is down 8.3%. Losses in small caps were much deeper than for the big-name companies, which reflects a “big is safer” mentality in play right now for investors.
The market appeared in decent shape ahead of the opening today, with surprisingly stout profit numbers from Apple ramping up enthusiasm on the technology side of things. What’s more, the market was coming off the best one-day performance of the New Year, showing a nice ability to shrug off the worst daily performance on Tuesday. However, the market has been unable to sink its teeth into a dominant trend, and once again alternated a winning day with a losing battle.
In a way, the lack of trend conviction for the overall market mirrors an elongated trading range pattern that has been in place ever since the market bottomed back in November. Recent downside probing and the relative ease with which support has been dispatched is alarming, and opens the door to retest the lows, but it also cements the sideways consolidation consistent with an extended recessionary period.
And it doesn’t exactly help inspire bullish confidence when the profit reports are sketchy and the economic data is bleak. There is a train of thought that says the market can now look past weak data because it’s already priced into things; while the historic evidence might support that theory, it’s easier said than done when latest numbers remain awful.
Coming into today’s action, the market had basically been able to trade on earnings news and political events, because we hadn’t seen any economic data of real import the first three days of the week. But this morning saw housing starts and weekly claims come out before the open, and when the numbers were bleak, it only added to bearish momentum that was gathering steam when Microsoft Corp. (Nasdaq:MSFT) released earnings ahead of schedule and the profit report was sloppy. MSFT tumbled about 11% on the day, closing below the Nov. 21 low in the process, which is a scary sign for the overall market as many hope that those November lows will hold up on any retest.
As for the economic numbers; housing starts came in at the worst reading in history (we’re talking about five decades of numbers), sinking 15.5% in December to a unit rate of 550,000, way off the forecast of 610,000. Even before the housing starts data was released, the latest update on mortgage activity showed a drop in applications as fixed mortgage rates climbed some 35 basis points last week. And it won’t exactly be easy to find buyers for even this reduced rate of housing starts when unemployment ranks continue to swell. The weekly unemployment claims report showed that some 589,000 people trudged down to the unemployment office the week before Barack Obama was sworn in as the 44th President of the United States. That figure was some 36,000 above the forecast and the number of people who were forced to file for continuing unemployment insurance because they can’t find a job rose to 4.607 million.
Back to the political angle, Obama’s chief spokesman Robert Gibbs said that “we have to do everything in our power and Congress does too to get that package moving, to the get that money into the economy to give the American people some confidence going forward.”
Traders were already thinking the biggest upside risk into the weekend would be details — leaked or released — about the fiscal stimulus package, and the market clearly bounced off the intraday lows in conjunction with Gibbs’ remarks. In addition, Obama’s pick to head the Treasury Department, Timothy Geithner, won approval from a Senate committee, which also will soothe some worries about leadership in that critical role. That said, it’s still not certain when the Geithner confirmation vote will take place and when he will take over the reins at the Treasury Department.
Financial and energy shares were the primary sources of weakness today for stocks, while defensive plays like drug stocks lagged the overall market decline. On the energy front, crude oil prices closed up all of $0.12 a barrel, bouncing off the lows on the White House stimulus comments, but still struggling amid a mountain of supplies as the latest tally shows a hefty rise in crude oil and refinery product stocks. Energy shares fell about 2.7% on the day, while the roller coaster world of bank stocks was down 5.9%.
Individual small caps making a move today were highlighted by Heartland Payment Systems Inc. (NYSE:HPY), which collapsed 40% on unusually heavy volume just two days after the credit card payment processing firm had a security breach. HPY stock tumbled to 52-week lows. DryShips Inc. (Nasdaq:DRYS), a frequent player on the “biggest mover” slate in recent weeks, tumbled 27% as the dry bulk carrier announced changes to help with capital expenditures and suspended dividends. DRYS bottomed with the regular stock market back on Nov. 21 at $3.04 a share and rallied up to a peak of $17.35 on Jan. 12 before slipping back to $10.50 today. Many are watching the bulk carrier group for signs that the economy is back on the upswing, and volume has clearly picked up for companies in that area since mid-December.
