Slightly lower in choppy trading
Small-cap stocks started out the first full week of 2009’s trading in choppy, bifurcated fashion, with support from energy and homebuilding stocks countered by selling in banking, financial, gold, telecom and drug shares. The Russell 2000 (NYSE:IWM) closed down 0.82, or 0.16% at 505.03, and is now up 1.1% for the New Year, compared with a gain of 2.0% for the Dow and 2.7% for the S&P 500.
The day looked to start out with a bullish bias amid gains in overseas trading tied to optimism over incoming President-elect Obama’s stimulus plans. Officials said this weekend that the measures could include $310 billion in tax cuts, an idea that was embraced by overseas investors – especially in those companies with strong sales to U.S. customers. However, the market has already had a few “Obamanomics” rallies in recent weeks and didn’t seem inclined to run with this latest information.
Telecom and banking shares were both bruised by analyst downgrades in the respective sectors. Dow component JP Morgan Chase and Co. (NYSE:JPM) was one of the harder hit big banks, dropping some 6.6%. Various small-cap banks and financial firms were prominent on a list of largest percentage losers today, particularly some of the lightly traded OTC bank stocks.
Small-cap stocks also saw a batch of downgraded guidance warnings today, a theme that will likely be prominent for stocks big and small for the coming quarter.
Despite a soft tone in several key areas, today’s economic data actually came in better than expected. Construction spending was off 0.6%, compared with the forecast for a slide of 1.3%. Meanwhile, vehicle sales were absolutely awful, but that was expected, and investors saw silver linings in the various reports. General Motors Corp. (NYSE:GM) reported a 31% slide in December sales and a 23% swoon for 2008, but GM shares actually pulled higher on the day, gaining 2.4%. Ford Motor Co. (NYSE:F) was also higher despite a 32.4% slide in December sales. Even with the huge collapse in sales, Ford executives said the firm gained market share. Ford stock rose 4.8% for the day.
Energy stocks were a prominent supportive influence today, with the Energy Select Sector SPDR Fund climbing 2.3%. Crude oil futures rose 5.3%, or $2.47 dollars a barrel to $48.81 as fighting in the Middle East between Israeli forces and Palestinians remained in play and as Russia quarreled with Ukraine on gas issues.
The rise in crude oil prices was impressive given a steep rally in the U.S. dollar, which soared some 2.5% or more than 330 basis points against the euro. A strong greenback often discourages buying in commodities because it raises the price of the raw goods, and that influence did appear to take a toll on gold prices, which tumbled some 3% and weighed on gold stocks, with the Gold and Silver Index off about 2.5% on the day.
Homebuilder stocks were a strong performer today, climbing 6% amid news that the New York Federal Reserve started buying mortgage-backed securities today. There is hope in the housing industry that if the Fed ramps up purchases of MBS paper, it could put further downward pressure on mortgage rates and spark a flood of refinancing and perhaps even purchase activity. Today marked the fourth consecutive rise for the ISE Homebuilder Index, which sports a bullish inverted head-and-shoulders bottom on daily charts. Small-cap homebuilders with nice gains today included Centex Corp. (NYSE:CTX), which was up 4.7% and Meritage Homes Corp. (NYSE:MTH), which gained 11.3%.
The chart picture for the Russell 2000 remains in a consolidation mode and today’s inside session pullback did not mark a significant failure. It would take a decisive slide back below 491 and perhaps even 473 to truly endanger the gentle upward bias now in play on short-term studies. On the upside, the next key resistance zones are at 514.50, then at 525. Looking ahead to Tuesday’s action there will be plenty of economic reports in the morning to ponder, including factory orders, ISM Non-Manufacturing and pending home sales numbers. However, the big event could well be the 2:00 p.m. ET release of FOMC minutes.
