Quiet rise; retail jitters vs. stimulus
Small-cap stocks pushed higher in a relatively tame session, with morning pressure from concerns about sloppy sales at Wal-Mart countered by optimism for massive infrastructure spending projects in the months ahead. Perhaps the story lines simply balanced out each other, or perhaps the market was taking a little “breather” ahead of Friday’s big jobs report. The Russell 2000 (NYSE:IWM) closed up 4.91, or 0.99% at 502.01 and is now up 0.5% for the year; meanwhile the Dow is off 0.3% for 2009 and the S&P 500 is up 0.7%.
The day started off with a thud as the Wal-Mart worries ignited fears that if consumer spending is slack at discounters, then how bad might it be for higher-end fare? Wal-Mart Stores Inc. (NYSE:WMT) reported same-store sales were up 1.7% in December, which missed the forecast for a rise of 2.8%. WMT was a drag on large-cap index products throughout the day, and eventually lost more than 7%.
There actually was plenty of movement today in the retail arena, with most stores now coming out with monthly same-store results. However, for every Wal-Mart, Limited Brands Inc. (NYSE:LTD) and Abercrombie & Fitch Co. (NYSE:ANF), all of which fell on weak numbers, there was a Sears Holdings Corp. (Nasdaq:SHLD), which jumped 23%. If you owned stock in any retailers, chances are you experienced some big swings today, but when you put them all together, the S&P Retail Index was up less than 1%.
Heading into Friday’s monthly Labor Department report, the market got a glimpse of the latest weekly unemployment claims. Though not part of the monthly figures due out Friday, they typically garner extra attention the day before the monthly jobs report. For the second week in a row, weekly claims actually came out below expectations, which might have been a good sign for those worried about the employment picture, but the number of people remaining on unemployment insurance because they can’t find a job rose to the highest level in 26 years, so it was a little bit of a “good news, bad news” release.
In recent weeks the market has typically embraced all things Obama, but equities fell Wednesday after his appearance, which brought up the possibility that the market is losing upside momentum when it relates to talk about economic stimulus programs. However, the President-elect made another appearance today to shed more light on his plans and while the market didn’t exactly take flight, it did seem to stabilize. That said, at some point people will want to see a plan passed, the checks in hand and people put back to work. In his speech today, Obama cautioned that the economy could get stuck in a recession for years and unemployment reach double digits without a sweeping $800 billion stimulus put into motion. He did not serve up much in the way of real details on the plan, however, which might have kept a lid on buying enthusiasm – especially in front of the jobs report Friday. Obama will be sworn in as the 44th President of the United States on January 20.
In a quirky way, a solid auction today for 10-year notes was actually embraced as a good sign by stock market investors. Typically, strong credit demand siphons off money from stocks, but in this case recent debt auctions overseas have been surprisingly soft, raising concerns that the amount of funds out there willing to mop up this mountain of debt was starting to dry up. If so, it could dent funding for various stimulus programs. As one veteran trader said, “if no one wants to buy our debt, then the end of the world as we know it is here.” Perhaps he was being a little melodramatic, but you get the picture. Anyhow, those concerns were set aside after a solid 10-year note auction this afternoon, a good sign considering the Treasury Department is flooding the market with supply.
Individual small-caps making a move today were highlighted by thinkorswim Group Inc. (Nasdaq:SWIM), which gapped higher and soared 49% on unusually brisk volume on news that the firm will be purchased by TD Ameritrade Holding Corp. (Nasdaq:AMTD) for $606 million. Acquisition activity in the financial arena has been at a standstill during the ongoing credit crunch, except for fire sale rescue moves of companies that were sinking. In this instance, thinkorswim was purchased at a nice premium and that has to be considered a positive development for small-caps and the market in general. AMTD stock was also higher on the news. Whole Foods Market Inc. (Nasdaq:WFMI) climbed 22% amid reports that private equity firm Yucaipa Companies LLC gobbled up a stake in the supermarket firm. This marked the highest daily close for WFMI since October 21. On the downside, Ulta Salon Cosmetics & Fragrance Inc. (Nasdaq:ULTA) gapped lower and shed some 21% as the firm said holiday sales were down 5.8%.
Today’s action saw a mild inside session rise on modest volume, which basically equates to a “nothing” day from a pattern standpoint. However, how the market finishes out the week on Friday after jobs will be interesting to see if recent upside action can be sustained on better volume and bigger news events. For now, the market is basically grinding higher in what is primarily a sideways consolidation, waiting for a breakout. For Friday’s action, initial support is close by at 491; below there, support is at 484 and 473. Meanwhile, resistance is at 508, then 514.50 and 525.
