Auto hopes, tech bounce, homebuilders lift small caps
Small-cap stocks pushed higher Friday in a miraculous recovery from a dreadful start. Investors embraced talk that the White House would find a way to funnel money into empty automaker coffers after Senate Republicans squashed a proposed aid package Thursday night. Tech stocks, real estate investment trusts, homebuilder and construction materials shares helped lift the Russell 2000 (NYSE:IWM) to a higher close, with the index closing up 17.22, or 3.82%, at 468.43. For the year, the Russell is now down 39%, while the Dow is off 35% and the S&P 500 is down 40%.
Today’s action started out under tremendous stress, with stock futures reeling overnight after Senate leaders rejected a $14 billion bailout bill for automakers. In addition, the commodities run that powered recent upside action looked tired, financial shares were still soft and news of a massive $50 billion investor fraud was in the mix. The market was poised for a 4% drop on the open, and who knows just how ugly things might have gotten … but that’s when the White House made it clear that they would throw a lifeline to drowning automakers. If the Senate wouldn’t approve a bridge loan to automakers without micromanaging their businesses and carving more concessions out of the union, then the Bush Administration would try to keep car makers afloat for a few weeks while the politics got sorted out. Turns out, it was a lifeline that rescued the stock market from what looked like a very troubling day. That said, General Motors Corp. (NYSE:GM) stock still slipped 4.3% today, while Ford Motor Co. (NYSE:F) was up 4.8%.
Technology shares were a clear source of strength today for the market, with big-time firms like Apple Inc. (Nasdaq:AAPL), up 3.4% and Intel Corp. (Nasdaq:INTC), up 5.2% setting the tone for a strong day in the tech arena.
The big event today was supposed to be the monthly retail sales report, which would most likely remind all of us just how bad spending is as we finish up the holiday season. As it turned out, the retail sales report was just as bad as predicted — which actually means it was good news. If you’re keeping tabs, the headline retail sales figure came in at minus 1.8%, right in line with the forecast. But the number was severely skewed by a steep decline in gasoline prices, and investors have shown a penchant to shrug off weak economic news lately anyhow.
Along with retail sales, the market also received data on business inventories (yawn) and on inflation (it was pulled down by lower gasoline too), but the real surprise was that consumer sentiment came in better than expected, with the Michigan sentiment survey at 59.1 versus the projection of 55. Of course, that’s a low number anyhow, so it’s not like everyone is suddenly all giddy about things, especially on a week that saw unemployment claims soar to the highest point in 26 years.
Commodities markets have been single-handedly holding up the stock market at times this week, but were unable to pull out another homerun today. The Commodity Research Bureau Index of 19 physical markets was off about 1.3% for the day, with everyone’s favorite market – crude oil – back in the tank, losing 3.5%, or $1.7 a barrel. Looking at sector activity, commodity themes were prominent on the losing side of the ledger, with coal, metals, agriculture products and oil exploration among the worst performers. Energy stocks dipped some 0.9% for the day.
Thrown into the mix today came news that a bunch of elite rich country club folks aren’t really as rich as they thought. Bernard Madoff, a former Nasdaq chairman and decades-long darling of Wall Street, was arrested for operating a massive ponzi scheme. Estimates on his losses could be as staggering as $50 billion. Madoff was reported to recruit investors through his country club memberships in New York and Florida, and the scandal could send a chill to high-end investors. It is seen as yet another frustration and a black eye for a market that is already trying to cope with losing about half its value off the highs. Madoff supposedly had some $17 billion under management, but indirect exposure to his fraud could double or triple that total. There was already some sense that part of Thursday afternoon’s late slide might have been spurred by leaks of the Madoff debacle.
Individual small caps of note today included Prologis (NYSE:PLD), which jumped 32% as the distribution facilities manager basically recouped a similar loss from Thursday’s session. PLD has seen its stock crumble from the $60 range six months ago to just above $2 at the recent low (PLD is now around $7.40). Exelixis Inc. (Nasdaq:EXEL) rose 31% on news that Bristol-Myers Squibb Co. (NYSE:BMY) would collaborate with the firm to develop cancer drugs. The deal provides a big cash infusion for EXEL. On the downside, PerkinElmer Inc. (NYSE:PKI) slumped 18% as the health and safety specialist gapped lower and plunged to fresh 52-week lows.
As for the chart picture, this week’s action didn’t really accomplish much. If you feel like you have survived a torrent of awful news and yet been disappointed with a lack of upside momentum as well … you’re right. This week’s 51-handle range marked the tightest price movement the Russell has seen since early September – back before the stock market collapsed.
