Small caps slip
Small-cap stocks slipped Wednesday, as an early lift on better-than-feared economic data and firm tech stocks was overshadowed in the afternoon by worries about banks, fretting over delays in the Obama stimulus program and slumping retail stocks. The Russell 2000 (NYSE:IWM) closed down 4.42, or 0.98% at 448.48 and is now down 10.2% for 2009. The Dow is off 9.3% for the year, while the S&P 500 is down 7.9%.
Bank of America Corp. (NYSE:BAC) did a belly flop today, plunging more than 12% at one point to 18-year lows, which pulled down bank and financial stocks across a wide swath. Investors remain concerned about the fate of banks, especially any nationalization talk that would wipe out shareholder equity. Delays in the “bad bank” concept and for the overall government response to the crisis also seemed in play today; the Obama Administration is expected to make some kind of announcement about bank emergency measures next week. The latest government news today was that Obama was setting executive pay ceilings for firms accessing bailout funds.
As market watchers hunker down for the big jobs report Friday, today’s economic reports were actually a little better than predicted, which helped spark some bargain hunting buying in the stock market. Ahead of the opening today, the ADP Employment survey showed a decline in payrolls of 522,000 and the firm predicted Friday’s Labor Department report would show a decline in non-farm payrolls of 525,000, which is higher than the average guess of 500,000, but not as bad as the worst-case scenarios floating about. While the ADP report might have found mild favor with a few bulls, the 10:00 a.m. ET release of the ISM Non-Manufacturing Report clearly was the more dynamic report. Today’s ISM data provides a glimpse of the sprawling services sector that makes up about 75% of the nation’s economy. The headline figure came in at 42.9, which was markedly better than the forecast of 39.1 and which marked the second consecutive advance in the services arena. Even though things might be looking up lately on the non-manufacturing side of things, this reading was still historically low.
Retail stocks outpaced the overall market decline, with the S&P Retail Index slipping 2.3% as same-store sales results for January start to pour in. Large department store stocks were taking a beating today, with Macy’s down nearly 6%, JC Penney off 7% and Nordstrom down 5%.
The price of gold rose back above $900 dollars an ounce in U.S. trading, climbing about 1.1% on the day, even though the U.S. dollar gained some 1.4% against the euro. Gold appears to be a favorite safe-haven play right now for short-term traders all the worries about bank stocks and it has also attracted long-term investment from those who believe that inflation will eventually re-emerge down the road as governments around the world unleash various economic stimulus programs. The Gold and Silver Index was up about 2.3%, with small-cap gold stock Golden Star Resources Ltd. (AMEX:GSS) rising 11%.
Within the commodities arena, crude oil prices edged lower today, mirroring the afternoon pullback in equities. For the day, crude lost 1.1%, or 46 cents a barrel to $40.32, but energy stocks still managed to hold in the green, gaining 0.7% on the session.
Small-cap stocks stalled on a test of the 20-day moving average, which also happened on the highs last week. Volume has been relatively light this week, both on the higher days Monday and Tuesday and also on today’s pullback. Daily ranges have also been skimpy, suggesting that some players simply aren’t involved in the market right now; perhaps they are waiting for Friday’s employment report, or perhaps they are sitting on cash waiting for the market to show more life before jumping back into the fray. Looking ahead to Thursday’s session, the market will get data on weekly claims ahead of the opening, which could carry extra weight in front of the employment release Friday. In addition, there is a report on productivity and a few speeches by Federal Reserve officials that could garner attention from traders. As for the chart structure, the market is once again tracking in a mini-range within the larger overall sideways consolidation. Key upside resistance is near 466 and again at the recent range highs near 474, while support is at 439 and 432.
