Climb with techs despite soft energy, financials
Small-cap stocks closed higher, navigating through a cross-current of worry about profits and the recession versus bargains in the technology arena. Slumping energy stocks and weak financials kept the Dow and S&P 500 on the defensive today, but the Russell 2000 (NYSE:IWM) rose 6.09, or 1.37%, at 449.61. For the year, the Russell is down 9.9%, while the Dow is off 9.5% and the S&P 500 is down 8.6%.
The tech-laden Nasdaq 100 advanced 1.3% on the day, with semiconductor stocks, systems software manufacturers and telecoms leading the way. Whenever the tech stocks markedly pace a move in equities, it always stirs talk that those firms will be better positioned to shoot higher when the economy recovers. From a market observation perspective, it would be healthy here to see small caps start to lead the way up on rallies versus the Dow, because it would suggest that investors are willing to take on more risk and not simply parking money in the big-name big-cap defensive stocks. Small caps led the way up during the bull market from 2002 to 2007, and they have been battered relative to large caps so far in 2009, which doesn’t help the bottoming argument.
This morning’s ISM Manufacturing Survey showed a smaller-than-expected pullback in the manufacturing sector, but the number was still consistent with a deep recession. The stock market bounced off the morning lows on the number, but it was still difficult to embrace the ISM report as a harbinger of better times to come. Ahead of the ISM report earlier today, the personal income release reflected a severe pullback in spending, which isn’t a surprise, but which always is a concern to the U.S. economy, which is so dependent on consumer spending for growth. Looking ahead to Tuesday’s session, the market will get vehicle sales, but no other fresh economic data of note.
It was interesting to see small caps diverge away from energy stocks today, as the Energy Select Sector SPDR Fund fell 1.6%. More often than not, small caps tend to track energy trends fairly closely, partly because of all the small-cap energy firms in play, and also because energy prices often set the tone for commodities, which also are well represented in small-cap indices. From an energy perspective, crude oil futures markets continue to fret about the global demand slowdown and rising inventories, which in turn tends to act as an anchor on the overall energy stock complex. The U.S. dollar started out the day higher against the euro, but gave back those gains by the close, so the currency part of the equation was not a limiting factor for commodities today.
Individual small caps on the rise today included Integrated Electrical Services Inc. (Nasdaq:IESC), which jumped 26% ahead of earnings news slated to come after Monday’s close. Blyth Inc. (NYSE:BTH) staged an impressive bullish key reversal by making new lows for the move then storming higher on unusually brisk volume. The home fragrance and décor firm rallied some 21%. Volt Information Science Inc. (NYSE:VOL) was also up about 21% as the telecommunications solutions company jumped back to the high end of a wacky range from Friday as investors digest earnings news from VOL.
The chart structure for small caps retains a bearish tilt, even though the market managed to hold above the January while the Dow broke through that support zone. Today’s advance took place on modest volume in a fairly tight range and the market remains below the key swingline at 450, so the overall picture remains troubling for the Russell.
