Highest finish since early November
Small-cap stocks turned in their best performance of the New Year today, as investors decided that a dreary picture of the current economic environment would simply make it that much easier for incoming President-elect Obama to push through a big fiscal stimulus package. The Russell 2000 (NYSE:IWM) closed up 9.68, or 1.92% at 514.71, the highest daily finish since November 4. For the first three days of trading in 2009, the Russell is up 3.1%, while the Dow is up 2.7% and the S&P 500 is up 3.5%.
In what promises to be a very busy week on the economic data front, the market skipped merrily through several gloomy reports today, with services sector activity, pending home sales and factory orders all consistent with an economy mired deep in recession. Even when a report beats the forecast, as was the case with today’s ISM Non-Manufacturing report on services sector activity, it’s still a low number historically. For the record, the ISM report came in at 40.6, well above the consensus projection of 37.0 and a nice turn of events considering the ISM’s tally on manufacturing Friday reflected a 28-year low.
Elsewhere on the data front, factory orders came in down 4.6%, which was quite a bit worse than the forecast for a decline of 2.5%. Meanwhile, pending home sales fell off the map again – down 4.0% -- versus the projection for a decline of 1.0%. Pending home sales are at the lowest level since the index was started back in 2001.
And then the big event this afternoon was the release of the FOMC minutes, which allows Fed watchers the chance to pour over the comments from our monetary policy leaders for more insight about their wisdom on the state of the economy. The short story here? The economy is lousy. But in a classic case of seeing the glass as half full, the stock market rallied off the FOMC minutes release, sensing that it will only enhance the odds for a big stimulus package when Obama takes the leadership reins in two weeks.
Looking at today’s performance, energy stocks, homebuilders, retailers, semiconductors, financials and even gold and silver shares all flirted with gains in the 2%-plus range. The losers were biotechs and tobacco.
The Semiconductor Index jumped 5%, easily outpacing the overall market advance. Small-cap semiconductors making a nice move today included Novellus Systems Inc. (Nasdaq:NVLS), which rallied 8.1% to the highest close since early November. In addition, small-capper Teradyne Inc. (NYSE:TER) rose 3.8% as is now testing an early November peak for the stock.
Gold was an interesting story today. The yellow metal slumped to 2-week lows on cash and futures trading early this morning, but rebounded into positive territory, and the Gold and Silver Index climbed 2.4%, also outpacing the broad market. Small-cap gold stocks seeing a nice run today included Golden Star Resources Ltd. (AMEX:GSS) up 6.5% and Vista Gold Corp. (AMEX:VGZ) up 8.8%.
Automobile manufacturers hit the ground running in 2009 after a historic belly flop in 2008. General Motors Corp. (NYSE:GM) jumped another 5.9% today, while Ford Motor Co. (NYSE:F) was up 7.7%. Ancillary businesses finding a lift from the bounce in automakers include tire and rubber companies, with small-cap firm Goodyear Tire and Rubber Co. (NYSE:GT) climbing 7.1%.
On the energy front, crude oil prices actually closed lower today in U.S. trading, rejecting a push above $50 dollars a barrel that coincided with a climb to 5-week highs. Despite the soft close in the physical market, energy stocks were able to carve out a higher close, with the Energy Select Sector SPDR Fund up 0.9%. Outside crude oil but within the energy arena, small-cap coal company Massey Energy Co. (NYSE:MEE) was up 5.7% to the highest point since mid-November.
Today marked the fifth consecutive daily gain for homebuilder shares, with the ISE Homebuilders Index up 4.6%. Small-cap homebuilders on the rise today included Meritage Homes Corp. (NYSE:MTH), up 9.2% and Centex Corp. (NYSE:CTX), up 8.1%.
Getting back to the economic data, there really is no place to hide this week from the storm of reports coming out, culminating with Friday’s big monthly employment release. On Wednesday morning, market watchers will get an early read on the jobs picture, with the 8:15 a.m. ET release of the ADP Employment Report. There will also be a Treasury 3-year note auction and the first Federal Reserve speaker’s version of the economic outlook, courtesy of Kansas City Bank President Thomas Hoenig at 1:00 p.m. ET.
As for the chart picture, today’s action was solid, especially with the late close above logical resistance at 514.50. The market remains on a consolidation path with a mild short- to intermediate-term upside bias (clouded by a nasty long-term bear market). If the Russell can firmly establish a foothold above 514.50 on Wednesday, then the next testing point of note is up at 525. On the downside, a slide back below 491 would be a big warning signal, although there should be some modest short-term support near 508 and 497 on the way down.
