A steep rise for small caps
The Russell 2000 (IWM) posted a big gain as news of a $45 billion bid for Yahoo! overshadowed bearish economic reports. The small-cap index soared 17.20 points, or 2.41%, to 730.50, outpacing the other major U.S. indices. The Dow Jones Industrial Average (INDU) advanced 92.83 points, or 0.73%, to 12,743.19.
Despite two days of big jumps, on a year-to-date basis, the Russell 2000 has lost 4.64%, while the Dow has let go 3.93% and the S&P 500 has shed 4.97%.
Small-cap stocks spearheaded the rally following news that Microsoft Corp. (Nasdaq: MSFT) made an unsolicited $44.6 billion bid for Yahoo! Inc. (Nasdaq: YHOO). That comes to a price of $31 per share, 62% above the stock’s closing level on Thursday.
The Redmond, Wash.-based software giant is trying to grow its online advertising business by buying the troubled search engine company, which has been shedding jobs and may not have the billions necessary to compete with hegemon Google Inc. (Nasdaq: GOOG).
If Microsoft and Yahoo!, who have held collaboration talks in the past, join forces, the combined company will likely be better positioned to compete against Google.
The news made investors bullish and the Russell 2000 and the Dow rose out of the gate and continued trending upward until shortly after 10 a.m. ET.
The buying spree was apparently blunted by news that U.S. construction spending contracted a more-than-expected 1.1% in December, according to the Census Bureau. The decline was led by a 2.7% decrease in residential construction.
“Housing remains very weak, with inventories still bloated even after the price declines and the sharp fall in [housing] starts,” said Arun Raha, vice president of economic research and consulting for the North American operations of reinsurance company Swiss Re, in an email. “I don’t expect the housing market to hit bottom until late this year or early in the next.”
Stocks small and large quickly trimmed their gains, but the Russell 2000 recovered and settled on an upward trajectory. The Dow bobbed up and down around but eventually moved up as well.
In more economic news, the U.S. Labor Department announced before the start of trading that payrolls unexpectedly fell 17,000 in January, while the figure for December was revised up by 64,000 jobs. The overall unemployment rate slipped to 4.9% from 5%.
“The labor market has softened, and is likely to remain that way until at least mid-year,” Raha said, adding that the payroll number is consistent with a slowing economy in the fourth quarter.
Separately, a small dose of good news came from the manufacturing sector.
The Institute for Supply Management surprised economists when it reported that its index of factory activity rose to 50.7 in January from 48.4 in December. A reading above 50 indicates growth.
“Manufacturing softened at the end of last year, but is showing resilience at the start of this year,” Raha commented. “However, I expect manufacturing to muddle along at best.”
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• CSK Auto Corp. (CAO), up 51% to $8.98 on news it has received an unsolicited bid from rival O’Reilly Automotive Inc. (ORLY) for $352 million in stock.
• BankUnited Financial Corp. (BKUNA), up 35%.
• Viad Corp. (VVI), up 28% to $34.81 on news it swung to a fourth-quarter profit.
• Omnicell, Inc. (OMCL), down 22% to $19.61 on news that fourth-quarter earnings met Wall Street’s forecast.
• BioForm Medical, Inc. (BFRM), down 18% to $5.72 on news that net sales for the second quarter rose but did not meet analysts’ projections.
• Agilysys, Inc. (AGYS), down 13% to $13.20 on news that fiscal 2008 third-quarter profit fell 90%.
• CSK Auto Corp. (CAO) 8,547,100 shares traded.
• Omnicell, Inc. (OMCL) 7,560,200 shares traded.
• Hovnanian Enterprises, Inc. (HOV) 6,264,700 shares traded.
The day saw eight small-cap stocks set 52-week lows, while six small-caps established a 52-week high.
