Russell stages triumphant weekly recovery
Small-cap stocks pushed lower, pulled down by losses in the tech sector and profit-taking from traders who caught the recovery rally off the lows. Today’s action represented a relatively calm finish to a frantic, volatile week that saw equities recover from the doorstep of desperation. For Friday, the Russell 2000 (NYSE:IWM) closed down 3.54, or 0.51%, at 693.08.
Despite the modest pullback today, small caps closed out the week with a gain of 18.13, or 2.68%, which is no small accomplishment considering the market made four-month lows on Tuesday when panic about the solvency of government-sponsored mortgage lenders hit a crescendo. At one point earlier this week, there seemed to be a swelling sense of doom about potential systemic risk within the entirety of the financial system, so the dramatic bounce off the lows swept in an important calming influence into things. What’s more, the nice rally off those lows turned the chart picture from a bear market path into a potential bullish reversal, which is an encouraging signal.
As for today’s action, financial stocks continued to seduce investors back into the fold, with the financial SPDR rising 3.5% despite the pullback in other sectors. Clearly, tech stocks were out of favor with stock market traders today, as soft earnings from key players such as Microsoft (Nasdaq:MSFT) and Google (Nasdaq:GOOG) overwhelmed bright spots such as IBM Inc. (NYSE:IBM). For the day, GOOG was down 9.7% and MSFT lost 6%.
Crude oil prices actually closed out Friday in negative territory after spending most of the session in the green, which kept a lid on buying enthusiasm in small caps throughout much of the day. Crude oil prices collapsed some 15% off last week’s record highs, which should bring some relief at the gas pump for consumers if prices will only stay contained looking forward. Although a late wave of selling pulled crude oil lower on the day, there was some reluctance to press the market ahead of the weekend amid storm worries in the Gulf of Mexico and ongoing tension in the Middle East.
Although banking and financial stocks have been dragged through the mud in recent months, they moved back into a better light this week as earnings have generally been a pleasant surprise. The better tone in financials was kicked off by Wells Fargo & Co. (NYSE:WFC) earlier this week, continued in play with JP Morgan (NYSE:JPM) Thursday and finished off today with Citigroup Inc. (NYSE:C) carrying the torch for the bulls. Citigroup shares rallied 7.6% Friday when the largest U.S. bank reported a smaller-than-expected quarterly loss. Even embattled mortgage lenders Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) were higher on Friday and both finished the week well above the panic lows from earlier in the week.
The U.S. dollar managed to push higher Friday against both the yen and the euro, even though the overall stock market struggled to sustain buying interest. For the day, the greenback was up about 0.2% against the euro, and about 0.5% versus the yen. Earlier in the week, the dollar had collapsed to record lows against the euro at the height of the GSE panic, so a weekly close well off those lows was a mild supportive element for dollar assets.
Broad market sectors on the decline today were highlighted by Internet software services, food retail, Internet retail, systems software, construction materials and biotech stocks. On the upside, thrifts and mortgage finance firms rallied. Also, leisure products, agriculture products and diverse financial services shares attracted buyers.
Small caps of note included Pinnacle Airlines Corp. (Nasdaq:PNCL), which rallied some 35% on news that a deal was struck with Delta Airlines (NYSE:DAL) for PNCL to retain connection services for the larger airline. Spreadtrum Communications Inc. (Nasdaq:SPRD) jumped about 26%, rallying off major move lows set earlier in the week. Gencor Industries Inc. (Nasdaq:GENC) rose 25%, putting together back-to-back huge gains to finish off the week. On the downside, Overstock.com (Nasdaq:OSTK) tumbled 39% on unusually brisk volume amid an analyst downgrade and concerns that the growth rate for the firm didn’t match investor expectations. Avocent Corp. (Nasdaq:AVCT) tumbled 14% on sloppy earnings news.
Looking ahead to next week’s action, the economic calendar is light, which should allow stock market traders to focus on earnings results while keeping a close eye on price gyrations in the crude oil market.
Despite the modest pullback today, small caps closed out the week with a gain of 18.13, or 2.68%, which is no small accomplishment considering the market made four-month lows on Tuesday when panic about the solvency of government-sponsored mortgage lenders hit a crescendo. At one point earlier this week, there seemed to be a swelling sense of doom about potential systemic risk within the entirety of the financial system, so the dramatic bounce off the lows swept in an important calming influence into things. What’s more, the nice rally off those lows turned the chart picture from a bear market path into a potential bullish reversal, which is an encouraging signal.
As for today’s action, financial stocks continued to seduce investors back into the fold, with the financial SPDR rising 3.5% despite the pullback in other sectors. Clearly, tech stocks were out of favor with stock market traders today, as soft earnings from key players such as Microsoft (Nasdaq:MSFT) and Google (Nasdaq:GOOG) overwhelmed bright spots such as IBM Inc. (NYSE:IBM). For the day, GOOG was down 9.7% and MSFT lost 6%.
Crude oil prices actually closed out Friday in negative territory after spending most of the session in the green, which kept a lid on buying enthusiasm in small caps throughout much of the day. Crude oil prices collapsed some 15% off last week’s record highs, which should bring some relief at the gas pump for consumers if prices will only stay contained looking forward. Although a late wave of selling pulled crude oil lower on the day, there was some reluctance to press the market ahead of the weekend amid storm worries in the Gulf of Mexico and ongoing tension in the Middle East.
Although banking and financial stocks have been dragged through the mud in recent months, they moved back into a better light this week as earnings have generally been a pleasant surprise. The better tone in financials was kicked off by Wells Fargo & Co. (NYSE:WFC) earlier this week, continued in play with JP Morgan (NYSE:JPM) Thursday and finished off today with Citigroup Inc. (NYSE:C) carrying the torch for the bulls. Citigroup shares rallied 7.6% Friday when the largest U.S. bank reported a smaller-than-expected quarterly loss. Even embattled mortgage lenders Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) were higher on Friday and both finished the week well above the panic lows from earlier in the week.
The U.S. dollar managed to push higher Friday against both the yen and the euro, even though the overall stock market struggled to sustain buying interest. For the day, the greenback was up about 0.2% against the euro, and about 0.5% versus the yen. Earlier in the week, the dollar had collapsed to record lows against the euro at the height of the GSE panic, so a weekly close well off those lows was a mild supportive element for dollar assets.
Broad market sectors on the decline today were highlighted by Internet software services, food retail, Internet retail, systems software, construction materials and biotech stocks. On the upside, thrifts and mortgage finance firms rallied. Also, leisure products, agriculture products and diverse financial services shares attracted buyers.
Small caps of note included Pinnacle Airlines Corp. (Nasdaq:PNCL), which rallied some 35% on news that a deal was struck with Delta Airlines (NYSE:DAL) for PNCL to retain connection services for the larger airline. Spreadtrum Communications Inc. (Nasdaq:SPRD) jumped about 26%, rallying off major move lows set earlier in the week. Gencor Industries Inc. (Nasdaq:GENC) rose 25%, putting together back-to-back huge gains to finish off the week. On the downside, Overstock.com (Nasdaq:OSTK) tumbled 39% on unusually brisk volume amid an analyst downgrade and concerns that the growth rate for the firm didn’t match investor expectations. Avocent Corp. (Nasdaq:AVCT) tumbled 14% on sloppy earnings news.
Looking ahead to next week’s action, the economic calendar is light, which should allow stock market traders to focus on earnings results while keeping a close eye on price gyrations in the crude oil market.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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