Hope on accounting front overpowers unemployment worries
Small-cap stocks pushed higher Thursday, boosted by talk that the Obama stimulus plan and his measures to help banks could include a provision to suspend the “mark-to-market” accounting provision that many say hurts financial balance sheets. In addition, tech stocks and retailer shares showed surprising strength that allowed the market to look past sobering economic data on the employment and factory orders front. The tech-laden Nasdaq 100 Index rose 2.4% on the day, while the Russell 2000 (NYSE:IWM) closed up 6.60, or 1.47%, at 455.08 and is now down 8.8% for the year. Meanwhile, the Dow is off 8.1% for the 2009, while the S&P 500 is down 6.3%.
Critics of the mark-to-market accounting procedure say that it forces firms to write-down losses on unrealized assets, which in turn bloodies the bottom line prematurely. However, proponents of the accounting process say it helps avert disasters like the Enron debacle. President Obama is slated to hold a press conference Monday evening to rollout his stimulus plan to the world in an effort to build momentum to get the $800 billion package pushed through a divided political landscape.
It was encouraging to see the stock market grind out a positive session today, especially in the face of disheartening data on weekly unemployment claims and slumping factory orders. The claims report came in at 626,000, which was way above the projected figure and also at 26-year highs. What’s more, the number of Americans forced to file for continuing unemployment benefits rose to 4.78 million, the highest number in history. Having a record number of people on the unemployment rolls the day before the monthly Labor Department employment report seemed quite daunting this morning, but the market quickly embraced the accounting talk and looked past the data.
Also on the economic front, the factory orders report tumbled 3.9%, which marked the fifth consecutive monthly decline and was a much worse number than expected. What’s more, the previous month was revised downward, making the data even weaker. Even though equities were able to shrug off the gloomy claims and factory data, Treasury markets moved higher as worries about a mountain of supply were countered by the recession.
St. Louis Federal Reserve Bank President James Bullard said that the TARP money should be used to mop up toxic assets and that the problem of illiquid assets must be tackled for the economy to recover. He also was concerned that the credit crisis has healed yet, saying “sustained growth probably can’t resume until financial markets stabilize.” Bullard also cautioned that suspending mark-to-market accounting procedures has not been a good idea in the past.
Minneapolis Fed President Gary Stern was also on the speaking docket today, but he said that he was “guardedly optimistic” that the pieces are falling into place for a recovery, but that it was unclear if further steps are still needed to restore stability.
The biggest upside influence on the Dow today came from discount retail giant Wal-Mart Stores Inc. (NYSE:WMT) as the company beat the monthly sales forecast and rose some 4% on the day. The same-store sales results across all retailers wasn’t necessarily an upbeat picture, but investors seemed to take the WMT upside surprise as a better sign for consumer spending moving forward. The S&P Retail Index rose 3% for the day; small-cap retailer Hot Topic Inc. (Nasdaq:HOTT) rose 5% and Jo-Ann Stores Inc. (NYSE:JAS) was up about 5% as well.
Individual small caps of note today included PetroAlgae Inc. (OBB:PALG), which jumped 33% to a record high daily close. It should be noted that volume in the firm that extracts oil from algae was only 1,150 shares. Shutterfly Inc. (Nasdaq:SFLY) climbed 27% as the Internet personal publishing site released quarterly results. Oil and gas exploration firm Mainland Resources Inc. (OBB:MNLU) jumped 40% to the highest point since September without any apparent fresh news. On the downside, ABIOMED Inc. (Nasdaq:ABMD) was down 21% as the medical devices firm took an earnings-related hit.
The recovery bounce in small caps off morning lows was supportive primarily in the ability for the Russell to push back above the swingline at 450. The market continues to test the water around the 20-day moving average, a line that turned back small-caps on the recent highs. Looking ahead to Friday’s session, the market will get the key jobs report in the morning ahead of the open, which could influence greatly how the day shapes up.
