Small caps lower
Small-cap stocks edged lower this morning, pulled down by ideas Friday’s gains were overdone, by ongoing worries about the credit crisis and the economic recession and by a batch of soft earnings announcements in the small-cap sphere this morning. Losses were limited by optimism about fiscal stimulus plans when President-elect Obama takes office later this month. At 9:56 a.m. ET, the Russell 2000 (NYSE:IWM) was down 9.82, or 1.94% at 496.03.
Over the weekend, Obama officials said that the stimulus plan could include some $310 billion in tax cuts, which could lessen the Republican resistance to the spending programs. Overseas markets were glad to hear the news, with Asian equities rallying. Federal Reserve officials also were extolling the benefit of a stimulus program in weekend talks, further driving home the point.
There was some concern that Friday’s big rise was perhaps a little premature, as noted in comments this morning from analysts at Goldman Sachs. “Friday's initial 2009 trading session saw global equity markets rally notably (around 3%). There was no obvious macroeconomic catalyst for the move, other than talk about a very large fiscal expansion. In fact, the macro news was clearly weak, as the ISM survey dropped much more than expected to 32.4. Technical factors, including year-end related flows, likely played a role, and it will be interesting to watch for any follow-through in coming days.”
The New York Federal Reserve began buying fixed-rate agency mortgage-backed securities today, which further shows that the Fed is dedicated to looking at “non-traditional” methods to lower various longer-term interest rates and help bolster economic recovery.
The U.S. dollar was on a serious roll this morning, climbing 2.3%, or more than 300 basis points against the euro, which could hamper performance on the commodities front. That said, copper and zinc were sharply higher in Asian trading on index adjustments, which could bolster mining stocks.
Speaking of commodities, crude oil prices erased solid overnight gains and slipped back toward flat levels ahead of this morning’s stock market open.
Individual small-caps on the move this morning included CONMED Corp. (Nasdaq:CNMD), which gapped lower and tumbled 24% as the medical technology company issued a downward revision to earnings amid tumbling sales. Highveld Steel & Vanadium Corporation Ltd. (Nasdaq:HSVLY) dropped 16% in a big pullback from 10-week highs notched Friday. Digi International Inc. (Nasdaq:DGII) gapped downward and shed 16% as the networking devices firm revised guidance. Koppers Holdings Inc. (NYSE:KOP) was off 11% as the carbon compound and treated wood manufacturer also had a big pullback off strong gains late last week. Gold stocks were taking a beating today with the strong dollar sparking sales of the yellow metal. Allied Nevada Gold Corp. (AMEX:ANV) was down 10% shortly after the open. On the upside, Lennar Corp. (NYSE:LEN) was only mildly higher, but saw strong early volume, likely stirred by the Fed’s MBS news. Multi-Fineline Electronics Inc. (Nasdaq:MFLX) gapped higher and gained some 25% as the firm announced earnings and also a share repurchase program.
The chart picture has improved markedly in recent days. Last week saw the Russell close above a previous correction peak for the first time since the collapse began back in mid-September. In addition, the market has been trading consistently above the 50-day moving average, which could attract some system type of money into things. For today’s session, look for support at 491, then at 484. A slide back below 491 on a closing basis would be a troubling development, especially if volume today is markedly improved. On the upside, resistance is at 514.50, then approaching 525.
