Bank M&A, eatery enthusiasm, auto deal lift small caps
Small-cap stocks pushed higher Friday, gaining a boost from merger activity in the banking sector, a jump in restaurant shares and a lift from news of a rescue plan for automakers. All of those factors help offset sloppy action in commodities, and worries about retailer sales into a key shopping weekend. The Russell 2000 (NYSE:IWM) closed up 7.09, or 1.48%, at 486.26 and is now down 37% for the year. Meanwhile, the Dow is off 35% for 2088 and the S&P 500 is down 40%.
Small caps were noticeably strong relative to large caps, fueled by M&A activity in the banking area. “I think that the M&T Bank Corp. (NYSE:MTB) purchase of Provident Bankshares Corp. (Nasdaq:PBKS) has caused investors to see value in small-cap banks and the purchase came at a nice premium,” Nick Kalivas, vice president of financial research with MF Global, said in an email interview. PBKS shares jumped 60% on the news.
Kalivas also said that positive profit news from restaurant operator Darden Restaurants Inc. (NYSE:DRI) provided a lift to the restaurant sector, which was reflected through impressive positive breadth in small-cap eateries. Small-cap restaurants on the move today included Cheesecake Factory Inc. (Nasdaq:CAKE) which jumped 12%; Brinker International Inc. (NYSE:EAT) up 29% as the firm completed a sale of the Macaroni Grill; The Steak n Shake Co. (NYSE:SNS), up 12%; and Papa Johns International Inc. (Nasdaq:PZZA) up 8%.
In addition, Kalivas said that the general atmosphere of cheaper gasoline and a mini-wave of refinancing activity provides a supportive element to the small-cap universe.
As for today’s quadruple witching expirations of stock index futures, options and single stock futures, Kalivas said that “pinning” action (which refers to pinning a market price near concentrated derivatives open interest strikes) probably put a cap on the large-cap market, which seemed even more in play during the midday time frame when small-caps were outpacing large caps by a wide margin.
After waiting all week for a decision that was originally expected on Tuesday, the market finally got the news it expected: the White House would tap into TARP funds to help provide a lifeline for the struggling U.S. auto industry. President Bush announced the plan ahead of the opening this morning, saying that $13.4 billion of taxpayer funds will be shipped off the Detroit carmakers to help them make it into the New Year. The bridge loans come with restrictions but also the potential for another $4 billion next year if those guidelines are met. Right off the bat, the United Auto Workers termed conditions of the loan “unfair” and called on President-elect Obama to intervene. Investors found the news good enough to snap up depressed automaker shares, sending General Motors Corp. (NYSE:GM) up 16%, while Ford Motor Co. (NYSE:F) was up 1.4%
Stock index futures reversed overnight losses on the auto bailout news, but as the day progressed, equities seemed to struggle to sustain buying enthusiasm as evidenced by the slack performance in the Dow and S&P 500.
Tech stocks were a noteworthy source of strength Friday, underpinned by a rise in software maker Oracle Corporation (Nasdaq:ORCL), which posted a drop in new sales but the picture wasn’t as bleak as some had feared. ORCL shares were up 7%. Also in the tech arena, Research in Motion Ltd. (Nasdaq:RIMM) posted results in line with expectations and projected a better-than-expected outlook, which sparked a rally in the smartphone maker, and sent good tidings throughout the technology group. RIMM shares gained 11%.
Energy and commodity physical markets struggled today, weighed down by concerns about demand amid slumping economic conditions around the world, and by a resurgent U.S. dollar, which jumped some 2.5%, or more than 350 basis points versus the euro. Crude oil futures eventually closed down $2.35 a barrel, or 6%, at $33.87, the lowest close for a nearby contract since February 2004. Despite the slide in crude oil prices, energy stocks were only down 0.2% on the day.
Retailer shares were a source of weakness for stocks today, a gloomy note into what has been billed as the busiest shopping weekend of the entire year. A snowstorm in Chicago and more inclement weather moving into the Northeast could stunt the last minute Christmas shopping frenzy and hurt retailers looking for one final major push in a difficult environment. The S&P Retail Index was down 1.2%.
Individual small caps on the rise Friday were highlighted by MAP Pharmaceuticals Inc. (Nasdaq:MAPP), which gapped higher and soared 36% on unusually brisk volume on news that the firm signed a deal with AstraZeneca (NYSE:AZN) to develop and distribute a pediatric asthma drug. Rubicon Technology Inc. (Nasdaq:RBCN) rallied 26%, and like a whole raft of small caps appears to be taking off suddenly after going through a prolonged sideways consolidation pattern.
Looking at the chart picture, the Russell once again had a disconcerting failure along the 491 zone, just one of several times the market has stalled in that area in recent days. At some point, the market needs to smash through 491 on a closing basis, or risk rolling back over into a bearish posture. Looking ahead to next week’s action, the market will be facing what is historically one of the slowest weeks of the year, with the focal point likely to be returns from this week’s shopping results. The government will cram all the economic data into release on Tuesday and Wednesday, and the stock market will close early Wednesday at 1:00 p.m. ET and will remain closed Thursday for the Christmas holiday.
