Small caps reeling from jobs report; Obama talk lifts from lows
Small-cap stocks remained sharply lower into mid-session, but were up from the extreme morning lows. Losses were stirred by worries over the economy, a revenue warning from key tech player Intel Corp and news of a big fraud from a major Indian outsourcing firm. At 12:33 p.m. ET, the Russell 2000 (NYSE:IWM) was down 11.90, or 2.31% at 502.81.
President-elect Obama addressed several issues at mid-morning, ranging from the Middle East situation to the economy. He said that his stimulus plan will likely be at the high end of expectations, which likely helped pull stocks off the morning lows. Equities markets in the United States and even around the world have embraced talk of a major infrastructure spending plan forwarded by Obama. Obama said that he will deliver a major speech on the economy and the stimulus package on Thursday. He is slated to take over as President on January 20.
Ahead of the opening today, the ADP National Employment Survey reported that 693,000 private sector jobs were lost in December, which was a record high for the ADP report (the data base started in 2001). That figure was way above the consensus forecast of 480,000 and triggered worries about Friday’s upcoming monthly jobs release from the Labor Department. It should be noted that ADP changed some of the methodology for the survey, which likely increased the number.
Intel Corp. (Nasdaq:INTC) issued a warning about revenue, which sent chills through the tech sector and kept concerns about the recession on the front burner. Intel stock was off about 3.7% through mid-session.
Looking at sector activity, motorcycle manufacturers, aluminum firms, coal companies, gold stocks, metal and mining firms, semiconductors, building products and hotels were among the worst performers today. Major aluminum firm Alcoa Inc. (NYSE:AA) said it would slash 13,500 jobs and reduce output, which sparked an 8% slide in Alcoa’s stock and rippled throughout the mining sector. Gold prices took a hit today, which also triggered sales in gold shares.
A huge scandal emerged out of India, where a massive outsourcing firm called Satyam Computer Services Ltd. (NYSE:SAY) said that profits had been overstated for “years.” SAY shares were off some 70% or more overnight, pulling the entire Indian stock market down as well, with the main index there off some 7.2%. There were concerns that another big stock market scandal would further erode investor confidence in the market in the wake of the Madoff ponzi scheme.
Bullish stories were harder to track down today, but automakers continued on an upside roll, with General Motors Corp. (NYSE:GM) up 4% and tire companies like Goodyear Tire and Rubber Co. (NYSE:GT) drafting higher with carmakers. Although the S&P Retail Index was down about 1.7%, food retail stocks, drug retail stocks and general merchandise stores were among the better performers so far today.
Individual small-caps making a ruckus today include RHI Entertainment Inc. (Nasdaq:RHIE), which tumbled 17% as the distributor of made-for-TV movies and other programming extended a 3-day pullback after seeing a sizable rally off the November lows. Plenty of energy-related stocks were taking a hit today, including Petroleum Development Corp. (Nasdaq:PETD), which was down 16% after notching the highest daily close Tuesday since mid-October. On the upside, Arbitron Inc. (NYSE:ARB) was up nearly 15% as the media marketing and research firm settled a lawsuit with the New York attorney general.
From a technical analysis perspective, today’s pullback is consistent with ongoing sideways consolidation trading and not a huge surprise given short-term overbought conditions on intraday momentum studies. The market stalled near a logical zone around 514.50 and that will remain a spot to watch if the rally kicks back into gear this afternoon or on Thursday. On the downside, there is support around 497 if the slide emerges again; below there, important support is down around 491.
