Third best showing of 2009 despite dreary jobs report
Small-cap stocks took flight Friday, as investors gambled that a terrible report on employment would be just the tonic needed to ignite a decisive push forward on a bank bailout plan and an aggressive fiscal stimulus package. The Russell 2000 (NYSE:IWM) gained 15.63, or 3.43% to 470.70, generating the third-best daily gain of the year. For 2009, the Russell is now down 5.8%, while the Dow is off 5.6% and the S&P 500 down 3.7%.
Although it might seem peculiar for the stock market to stage one of the best rallies of the year on a day in which the unemployment rate climbed to 16-year highs and amid news that January saw the largest amount of job losses in 34 years, investors decided that the worrisome news on the job front would light a fire under lawmakers to set aside partisan politics and quickly deliver a powerful stimulus package to jump-start the ailing economy. In addition, the market was already hoping for a bank bailout plan to be unveiled Monday, and now the need to help banks and spur lending seems even more pressing.
Treasury Secretary Timothy Geithner is slated to hold a press conference Monday at noon to discuss details on the plan to stabilize the financial system and President Obama named an advisory panel on Friday led by former Federal Reserve Chairman Paul Volcker to guide the rescue effort for the economy. Obama today said it was “inexcusable and irresponsible” for lawmakers to get bogged down, distracted or delay while millions of Americans were being put out of work.
For the record, the unemployment rate climbed to 7.6%, the highest level since September 1992. In January, some 598,000 jobs were shed from non-farm payrolls, the largest toll on American workers since December 1974. There are concerns that the unemployment rate could eventually climb toward 9% before the labor picture bottoms out, but there also is a sense that the market will have already turned higher long before the worst of the recession is in the record books. It’s a leap of faith that investors were willing take today despite jolting losses on the jobs front.
Looking at the details of today’s report, Steven Wood, chief economist with Insight Economics said, “Since the beginning of the recession in December 2007, 3.572 million jobs have been destroyed; 70% of these losses have occurred in just the last 5 months. In addition, the pace of job loss is accelerating with more than 1.75 million jobs being lost in just the past 3 months. The recession is intensifying and the economy is rapidly shrinking. We are staring into the abyss,” Wood said in an email.
Next week will see a moderation on the economic data front, which should allow the market to focus on news events out of Washington, various profit reports and global trends for trading direction. There are no major economic releases until Thursday’s retail sales report, which should share top billing with the weekly unemployment claims numbers.
As one might expect given the timing of Monday’s bank bailout details, bank and financial stocks led the way on today’s rally. The KBW Banking Index shot up 12% and the Financial Select Sector SPDR Fund rallied about 8%. Retailer stocks have been a strong performer at the tail end this week, and the S&P Retail Index rose another 3% today despite signs that consumers are pinching off spending to gird for the worst of the recession.
One area that lagged the overall market advance today was energy, where crude oil prices lost 2.4% on the day amid worries about demand in the recession, and also large deliverable stocks against the U.S. contract and hedge fund rollover into further-out maturity contracts. Even though crude prices were off for the day, energy stocks still managed to climb into positive territory.
Individual small-caps in rally mode today were highlighted by financial firms, with regional banks doing particularly well. Marshall & Ilsley Corp. (NYSE:MI) soared 40% to top the NYSE percentage movers list. Webster Financial Corp. (NYSE:WBS) charged up 20% as well. Outside of the financial arena, Skyworks Solutions Inc. (Nasdaq:SWKS) rose 35% as the semiconductor firm received an earnings-related lift.
The chart picture for small-caps improved as the market climbed above the 20-day moving average from below that trending line indicator for the first time since early December. The market is now back near the recent trading range highs, but would need a push through 474 next week to suggest an upside breakout is in the works.
