Housing data, M&A hopes boost small caps
Small-cap stocks remained higher into mid-session, bolstered by a big acquisition on the pharma front, which sparks hope that small caps are undervalued overall. If there are deals being done for large caps, then there should be attractive acquisitions for a bevy of smaller companies. In addition, a surprisingly strong showing on existing home sales also provided a lift to the market. At 12:53 p.m. ET, the Russell 2000 (NYSE:IWM) was up 8.96, or 2.02%, at 453.32.
Buyers also were happy to see that bellwether stock General Electric Co. (NYSE:GE) retained its credit rating despite slumping profits last quarter. And massive bank Barclays said that they did not need additional capital to weather the current storm, which provided a boost to the financial sector. The Financial Select Sector SPDR Fund was up 2.2% at midday.
Energy stocks were on a roll today, up 2.9%, mirroring a 3% climb in cash crude oil prices. Energy prices and stock market direction have been trading hand-in-hand of late, so the rise in equities clearly supported crude oil. In addition, OPEC cuts appear to be attracting a higher compliance rate than usual, providing some offset to concern about weak demand and hefty reserves.
This morning’s existing home sales report came in with a rise of 6.5% to a rate of 4.74 million units, quite a bit better than the forecast of 4.40 million, according to the National Association of Realtors. In addition, the Conference Board said that an index of leading economic indicators rose 0.3%, which also topped the forecast for a slide of 0.3%. The home sales data were particularly positive for the market, as many believe that this whole mess started with a housing bubble and won’t turn around until the housing market shows that it has bottomed. Later this week we’ll get data on new home sales to add to the overall housing picture, but the bulk of home sales in the U.S. take place on existing units, so today’s data was undeniably key.
Looking at sector activity today, metals and mining stocks were the strongest performing group in the S&P. Automobile manufacturers were on a roll, with Ford Motor Co.’s (NYSE:F) 12% rise more than offsetting a 2% dip in GM. As one might expect given the existing home sales surprise, homebuilder stocks were going well today, with the ISE Homebuilders Index up 4.6%, with small-cap builder Lennar Corp. (NYSE:LEN) rising 11%.
It should be noted that today’s rally in small caps fit with a little doji pattern on daily candlestick charts from Friday, but does not take the market out of the range or substantially impact the overall chart structure. However, action above 466 would help suggest a short-term upside breakout, so that area is worth watching if the market heats up this afternoon.
