Small caps rise with homebuilder, drug, energy gains
Small-cap stocks pushed higher Tuesday, shaking off losses in the banking and financial sector amid gains for homebuilders, drug and energy shares. The Russell 2000 (NYSE:IWM) closed up 3.28, or 0.73%, at 452.90, but lagged gains in the Dow and S&P 500, which takes some of the edge off the advance. For the year, the Russell is down 9.3%, while the Dow is off 7.9% and the S&P 500 is down 7.1%.
The market started off on a defensive note and continued to chop around on both sides of positive ground until the bulls gained traction in the afternoon. About 30 minutes into the session an upbeat reading on pending home sales and an announcement by the Federal Reserve that they would extend various credit windows helped underpin the market.
For the record, pending home sales came in plus 6.3%, well above the forecast for a flat reading. The upside release helped spark a rise in homebuilder stocks with the ISE Homebuilders Index climbing 8.3%. Several key companies in the homebuilder universe fall within small-cap guidelines, including Meritage Homes Corp. (NYSE:MTH), which jumped 17% on the day. Small-cap builders KB Home (NYSE:KBH) rose 10%, while Centex Corp. (NYSE:CTX) was up 10%.
The other piece of economic data in play today came from various sales reports out of automobile companies. As expected, vehicle sales fell off a cliff again in January, with General Motors Corp. (NYSE:GM) collapsing 49%, Ford Motor Co. (NYSE:F) down some 40%, while Toyota Motor Corp. (now the world’s largest automaker) saw a sales drop of 34% and Nissan tumbled 30%. Despite the sober news on sales, Ford shares actually finished higher on the day (up about 4%), while General Motors was down 3%.
Energy shares outpaced the overall market rise today, helped along by a modest 1.7% advance in crude oil futures, which gained $0.70 a barrel to $40.78. Crude prices were underpinned by talk of additional production cuts out of OPEC and some worries about possible refinery worker strikes.
Elsewhere on the commodity front, a slide in the U.S. dollar against the euro might have helped things for some physical markets and copper prices jumped higher on the rally in homebuilder stocks after the pending home sales report.
News that Republican senators are proposing a $445 billion alternative plan to support the U.S. economy provided a spark to the market, but the weak performance for bank and financial shares suggests that Wall Street is fretting about potential delays in the Obama stimulus package, especially with partisan politics hindering progress. The Senate began debate today on possible changes to the $885 billion spending bill that was rammed through the House without any Republican support.
Individual small caps on the rise Tuesday (outside of homebuilders) were highlighted by InterMune Inc. (Nasdaq:ITMN), which gapped higher and soared 35% on brisk volume on news that the firm’s lung drug met the trial goal. The ever-present and ever-volatile DryShips Inc. (Nasdaq:DRYS) gapped higher today, saying it will restructure loan facilities, which sparked a nice 24% rise. DRYS had been a sinking ship of late after canceling a ship purchase to preserve capital. Central European Distribution Corp. (Nasdaq:CEDC) jumped 21% as the largest Polish vodka producer affirmed 2008 guidance and updated the 2009 outlook. Peanut snack maker John B. Sanfilippo & Son Inc. (Nasdaq:JBSS) rose 23% as investors embraced earnings news from the company. On the downside, memory card maker SanDisk Corp. (Nasdaq:SNDK) tumbled 23% as the firm’s sales forecast was below market projections and as they announced plans to issue stock to raise money.
The rally in small caps back above the 450 swingline was a modest supportive element for the market, but today’s advance once again saw relatively light volume and a tame range, which lacks the punch of a high volume, big range reversal session. Still, persistent action above 450 through Friday’s big jobs report would help fortify the bullish foundation theory. Looking ahead to Wednesday’s session, the market will get an early glimpse at private jobs numbers from the ADP Employment Survey, which is expected to show a loss of some 530,000 from non-farm payrolls.
