Resounding thud
Small-cap stocks took a sizable hit today and finished off the first full week of the New Year’s trading with a resounding thud as an unsettling report on employment rekindled worries about the recession, consumer spending and the credit crunch. The Russell 2000 (NYSE:IWM) closed down 20.71, or 4.13% at 481.30 and is now down 3.6% for the year, generating the largest one-day drop of 2009 in the process. Selling in small-caps was much more fierce than that seen in the Dow, which was only off 1.6% for the day; for the year, the Dow is down 2%, while the S&P 500 is down 1.4%.
In recent weeks, the market has often tried to rally in the face of troubling economic data, but the bulls just weren’t eager to shrug off this morning’s jobs report, which showed the unemployment rate rising to a 16-year peak. What’s more, unemployment is widely expected to climb in the next couple of months; earlier today, bond giant PIMCO chief Bill Gross said that “we’re only halfway home” as far as job losses are concerned in the U.S.
The headline figure on today’s employment report – the number of non-farm payroll jobs lost – actually was in line with the forecast at 524,000, but the Labor Department revised job losses upward in both October and November, which took away from any rally that might have been lurking on the non-farms number. Another sobering element of the report was the realization that more jobs were lost in 2008 than in any year since 1945.
Tech stocks, banks, homebuilders and energy sectors all took a hit today. In the latter, crude oil prices were off 2%, finishing the week just above $40 dollars a barrel as energy traders fret that the sluggish economic environment in the U.S. will hurt demand from the world’s largest energy consumer. Selling interest swamped the market as the day progressed; the only sectors showing mild upside movement were health care equipment firms and tobacco companies. Retailers, which climbed to 3-month highs early in the week, were also taking a hit today, with the S&P Retail Index off about 2.7%.
One pattern that was discouraging was the decline in small-caps relative to large-caps. This is supposed to be a good seasonal for small-caps as investors take riskier bets while reinvesting cash from tax-related year-end sales. There is a general sense among investors that the market will mirror the pattern in January for the rest of the year, and that the rest of the month will mimic how the first week of trading goes. While those theories lack factual punch in recent years, it’s still an inauspicious start for stocks given the promising first three trading sessions of 2009 saw a nice upside push. As it turned out, this week’s pullback marked the largest one-week decline for the broad market over the previous seven weeks.
Individual small-caps making waves today included Rambus Inc. (Nasdaq:RMBS), which tumbled about 40% on huge turnover amid news that the firm lost a patent lawsuit against chipmaker Micron Technology (NYSE:MU). Yucheng Technologies Ltd. (Nasdaq:YTEC) tumbled 19% as the Chinese IT provider updated guidance. Homebuilder Lennar Corp. (NYSE:LEN) fell 16% on heavy volume when a letter questioning the firm’s transactions in the late 1990s hit a fraud discovery website. The company issued a statement calling the accusations “false and inflammatory.”
The biggest upside percentage push came from a small Denver based motion manufacturing firm – Allied Motion Technologies Inc. (Nasdaq:AMOT) – which gapped higher and soared some 52% on a stunning explosion in volume. AMOT typically trades about 10,000 shares any given day...volume today was approaching 1 million shares. Another relatively obscure small-capper seeing a volume and price surge today was Tiens Biotech Group (USA) Inc. (AMEX:TBV), which jumped 42% to the highest point since October 2007 with volume jumping about 40 times above normal levels.
From a charting standpoint, today’s slide back below 491 is cause for concern. While the overall chart formation remains an elongated sideways consolidation, the breach of 491 support suggests that the market may need to retest downside support zones. The first minor point was already violated late today at 484; below there, 473 is the next area to watch. There will be plenty of economic event risk in the works next week as well; although nothing matches the typical anticipation of today’s jobs report, the market still will receive critical updates on inflation and retail sales.
