Stimulus deal helps spark modest rally
Small-cap stocks edged higher Wednesday, finding an afternoon reprieve when news broke that a deal was hammered out on the stimulus bill, which lifted the market back up out of the red. Downtrodden bank and financial stocks provided a lift to the market, as did gold stocks, helping to counter weakness in the technology arena. The Russell 2000 (NYSE:IWM) closed up 2.18, or 0.49%, at 447.95 and is now down 10.3% for the year. Meanwhile, the Dow is off 9.5% for 2009, while the S&P 500 is down 7.6%.
The market still seemed a little shell shocked after Tuesday’s swoon when the bank rescue plan didn’t seem to play well with investors. Reaching a deal on the stimulus plan was just a matter of timing and there is a sense that it will take many months for the plan to generate help for the struggling economy, so perhaps it’s not a surprise that bounce off the stimulus deal didn’t seem to have a lot of traction. For the record, the deal comes in at $789 billion and a vote on the final product could take place Thursday and would most likely get a very fast stamp of approval from the White House.
In other policy events today, banking executives spent the day in Washington testifying about the first batch of TARP money that was doled out last year. Bank shares were a bright spot for the market today, with the KBW Banking Index rising about 5%. Small-cap banks dominated the biggest percentage gainers today, with firms like First M&F Corp. (Nasdaq:FMFC) climbing back from a big slide Tuesday. FMFC gained about 21% on the session. Small-cap bank Marshall & Ilsley Corp. (NYSE:MI) rose 12% today, gaining back some of the 26% spiral from Tuesday; still MI shares are down about 85% from the September 2008 peak.
Gold stocks were a source of strength today, likely bolstered by investors looking for a hard goods safe haven away from struggling equities and also amid talk that asset managers have been ramping up allocation percentages on gold investments. Gold futures climbed some 3% on the day, while the Gold and Silver Index jumped about 7%. Several small-cap gold stocks were a hot item today, including Golden Star Resources Ltd. (AMEX:GSS), which jumped some 14%.
Despite the rally in gold prices and gold-related investment, not all was well in the world of commodities today. In fact, crude oil prices tumbled 4.2% in New York, losing $1.61 to $35.94 a barrel, pulled down by a surprisingly large build on weekly inventories. Even within the metals arena, all was not well. Gold might have been on a roll, but industrial metals slumped. Copper prices in U.S. trading tumbled some 5% amid news that China’s January imports of copper fell 19%. Copper is seen as a key ingredient in building, and a benchmark for global growth, so a slumping copper market simply renews all the worries about the economy.
Tech stocks were a clear drag on the market today, with Research in Motion Ltd. (Nasdaq:RIMM) getting thumped today, sinking about 14% as the firm cautioned on the revenue outlook. The maker of Blackberry gadgets had been a stellar performer since bottoming in early December, but was the poster child for lagging techs today. The tech-laden Nasdaq 100 Index lost 0.16% on the session.
Today’s mild recovery in small caps took place on lighter volume than what was seen during Tuesday’s big collapse, which is a mild non-confirming element of the rise. The daily price range was relatively thin, offering up few directional clues, but the market did hold above a little trendline drawn off the January 23 low, which was a mildly supportive sign. For now, the market remains in a trading range defined by 474 on the upside and 431 on the downside; a breakout in either direction would be a noteworthy event.
Looking ahead to Thursday’s session, economic event risk amps up a little bit after a relatively tame week. Before the opening, the market will get numbers on weekly unemployment claims which jumped to a cycle (and 26-year high) last week at 626,000. The market is looking for about 610,000 claims this go around. In addition, the monthly retail sales figure comes out, and the market is bracing for a predictably awful tally, with a consensus forecast of minus 0.7%.
