Russell 2000 tops strong rally
The Russell 2000 (IWM) jumped earlier and higher than the other major U.S. indices as upbeat financial news sparked a rally. The small-cap index soared 17.81 points, or 2.56%, to 713.30. The Dow Jones Industrial Average (INDU) added 207.53 points, or 1.67%, to 12,650.36.
On a year-to-date basis, the Russell 2000 has declined 6.88%, while the Dow has let go 4.63% and the S&P 500 has retreated 6.12%.
Wall Street made a remarkable turn around today and posted strong gains following news midway through the session on news that bond issuer MBIA Inc. (NYSE: MBIA) will retain its top rating despite posting a record quarterly loss.
News reports quote MBIA’s CEO Gary Dunton as saying he is confident his company will maintain its AAA rating as it takes measures to raise capital.
That calmed investors and allowed the bulls to take center stage.
According to other news reports this afternoon, major rating agencies will hold off on downgrading the Armonk, N.Y.-based company, which primarily guarantees municipal bonds.
A downgrade will make it difficult for MBIA to find clients and will lower the value of many of the bonds that it insures. In turn, that will lead to a wave of write-offs at banks and other financial institutions and make it more difficult for the issuers of municipal bonds to raise capital.
The Russell 2000 spearheaded the rally and started gaining ground at about 11 a.m. The other major U.S. indices started rising about 30 minutes later but did not have the same positive energy.
Stocks began the day in negative territory following news that weekly jobless claims jumped while consumption weakened.
The U.S. Labor Department reported that initial jobless claims for the week ended Jan. 26 increased 69,000 to 375,000, the highest level since October 2005. The preceding week’s upwardly revised total was 306,000.
The increase was in excess of what economists were expecting and a sign that the labor market is softening as economic activity slows.
Worse, the U.S. Commerce Department said that consumption, which is about 70% of gross domestic product, increased just 0.2% in December, compared with a downwardly revised gain of 1% in November.
When you adjust the December figure for inflation, spending was practically flat.
The same report shows that the price index for personal consumption expenditures rose 0.2%. The core index, which excludes the cost of food and energy, also added 0.2%.
The two reports tell us that an economic slowdown started at the end of 2007 and will continue into 2008. As reminder, on Wednesday the Commerce Department said that fourth-quarter GDP growth was just 0.6%, compared with an annual rate of 4.9%.
Investors will be looking to the government’s report on January nonfarm payrolls on Friday for more clues about the state of the economy.
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Royal Bancshares of Pennsylvania, Inc. (RBPAA), up 39% to $14.58.
• Irwin Financial Corp. (IFC), up 28% to $11.49.
• Meruelo Maddux Properties, Inc. (MMPI), up 27% to $5.25.
Biggest percentage losers:
• Accuray Inc. (ARAY), down 36% to $9.52 on news of a lowered fiscal 2008 guidance and an analyst downgrade.
• Harris Stratex Networks, Inc. (HSTX), down 24% to $10.89 on news of second-quarter earnings below Wall Street’s projections.
• CEVA Inc. (CEVA), down 17% to $8.90 on news that it forecasted first-quarter revenue below projections.
Volume leaders:
• Accuray Inc. (ARAY) 10,036,000 shares traded.
• Audible, Inc. (ADBL) 9,719,900 shares traded on news it will be purchased by Amazon.com Inc. (AMZN) for about $300 million.
• Hovnanian Enterprises, Inc. (HOV) 7,047,300 shares traded.
The day saw 33 small-cap stocks set 52-week lows, while 10 small-cap established a 52-week high.
