Solid start
Small-cap stocks rang in the first day of trading in 2009 with a solid, albeit light-volume advance, fueled by steep gains in energy shares, and an impressive showing from retail and technology stocks. The Russell 2000 (NYSE:IWM) gained 6.37, or 1.27% to 505.82, the highest daily close since November 5.
The Dow was up 2.94% on the day, while the S&P 500 was up 3.16%, so the big-cap outperformance was a little bit of a sign that the market is still in a wary frame of mind, especially with a January seasonal that tends to favor small-cap stocks. That said, there were no new 52-week lows on small-cap stocks with market caps between $100 million and $2 billion, which is fairly unusual.
Energy stocks hit the ground running this year, with the Energy Select Sector SPDR Fund soaring nearly 6%. Crude oil prices were up 3.9%, rising $1.74 dollar a barrel to $46.34, which was a big reversal of fortune from a $2-dollar slide in European trading overnight. Violence in the Gaza Strip and tension between Russia and Ukraine were supportive elements in play on the cash crude side of things.
In addition to energy, other commodity themes were attractive plays for investors, even though the U.S. dollar rose about 1% against the euro. Coal stocks were on fire today, while investors also took a shine to metal and mining companies. Small-cap coal firm James River Coal Co. (Nasdaq:JRCC) was up 13% and National Coal Corp. (Nasdaq:NCOC) was up nearly 12%.
There is a perception in the investment community that technology stocks are sitting on piles of cash and therefore better able to weather any further economic storm in the first quarter. That perception fueled a nice rally in tech stocks today, with household names like Microsoft Corp. (NYSE:MSFT) and Apple Inc. (Nasdaq:AAPL) posting impressive gains – particularly on a cap-weighted basis.
Speaking of economic storms, this morning blew in the first big economic report of the New Year, and it wasn’t pretty. The ISM Manufacturing Survey came in at 32.4, which was below the forecast of 35.4 and which was also the lowest reading in some 28-plus years. A price component of the manufacturing data was actually the worst since 1949, and the report was consistent with an economy that is limping through a brutal recession. But traders have been quick to shrug off weak data in recent weeks, and today’s report was no different. What’s more, the market is headed toward a large helping of economic data next week, including the big monthly employment report next Friday. With a more filled-out investor community in tow after the holiday break, it will be interesting to see if the market can continue to rally through weak economic reports.
Hotel stocks aren’t usually a big topic of conversation for equities, but hoteliers were on a serious roll today, triggered by a 15% surge in large-cap firm Starwood Hotels & Resorts Worldwide Inc. (NYSE:HOT). Starwood signed a confidentiality deal with Sam Zell’s Equity Group Investments LLC, which could be prep work for a bigger stake in HOT. And if there are deals to be done for big-cap hotels, then there are probably deals to be had on the small-cap side of things. Within the small-cap realm, Morgans Hotels Group Co. (Nasdaq:MHGC) was up 10% and Red Lion Hotels Corp. (NYSE:RLH) jumped nearly 15%.
Retailers are supposed to be on life support following a dismal holiday shopping season, but the S&P Retail Index rose 4% today as investors are hoping that consumers will develop a shopping attitude in 2009. Small-cap apparel firm Talbots Inc. (NYSE:TLB) rose 9.2% while Christopher and Banks Corp. (NYSE:CBK) was up 6.6%.
Although the light volume accompanying the rally Wednesday and today take some of the bullish edge off the move, the price action has been impressive. The push through 491 had conviction and further action above that line next week would confirm that small-caps have snapped the bearish behavior cycle that typified the collapse from mid-September to the November lows. Looking forward, the next test for the Russell is at 514.50, then at 525, but the REALLY big number to watch next week will be at 550 if the rally continues in play. On the downside, any slide back below 491 would be troubling and any breach of 473 would be a big worry sign.
