Optimism on rescue bill ignites small-cap buying spree
Small-cap stocks shot higher Tuesday, lifted by a renewed sense of optimism that the logjam in Washington on the financial rescue plan will be cleared. Upbeat economic data and a rush of bargain hunting also played into the huge rally in stocks. For the day, the Russell 2000 (NYSE:IWM) was up 21.87, or 3.32%, at 679.58. For the year, small-cap stocks are now down 11.2%, while the Dow is off 18.1% and the S&P 500 is down 20.7%.
The market retained diabolical volatility; just one day after Wall Street endured the worst day since the 1987 stock market crash, they enjoyed the best day in six years today. Financial stocks – especially banks – were back in favor today, helped by talk that accounting regulations could be changed to allow more favorable rules on asset valuation. The PHLX KBW Banking Index shot up 15.7%, which is a stunning one-day advance for that product. Among individual large-cap banks, Citigroup Inc. (NYSE:C) was up 15.6%, while JP Morgan Chase & Co. (NYSE:JPM) rallied 13.9%.
The market took heart in talk from President Bush that a financial rescue bill would still be resuscitated this week, which triggered a rush of pent-up buying from investors who see value at current levels. That said, recent volatility underscores that the tone can shift violently at a moment’s notice.
Although investors are too preoccupied with the to and fro between Wall Street and Washington on the rescue plan front to pay much attention to economic data, a couple of reports this morning topped the forecast and likely helped retain the positive mood. The Chicago Purchasing Manager’s Survey came in at 56.7, which was well clear of the 54 projection and the consumer confidence figure was at 59.8, also well above the consensus forecast of 55.0. As we creep closer to Friday’s big employment report, look for the economic data to take on a little bit more of the spotlight, even if the big news remains the drive for a historic bail-out for banks clogged down with bad debt.
Investors will likely bid good riddance to the month of September, which has a rough history on the stock market and certainly took a toll again this year. The month of September 2008 could very well be remembered in investment history as a period of dramatic change for banking, insurance and financial industries.
For the month, the S&P 500 was down 9.1% for the worst performance in six years and the Nasdaq 100 was off 12%, marking the worst September since the 2001 terrorist attacks. The Russell 2000 was off 8.1%, even with the nice lift on the final day of the month.
Broad market sectors on the rise today were highlighted by automobile manufacturers, which jumped some 20%. Outside of that, the best sectors were dominated by financial themes, with thrifts, regional banks, specialize finance firms, property and casualty insurance companies, diverse financial services and asset managers all notching double digit advances on the day. The only downside sectors of note were gold and food distributors. For the month of September, thrifts collapsed 58% and multiline insurance companies evaporated 57% of their asset value. Even though banks and insurance companies dominated the headline losers in September, steel shares were off 36%, metals and mining stocks were down 35% and coal stocks off 32%. Footwear and diverse finance services stocks were the only S&P sectors to post double digit gains for the month.
Individual small caps of note Tuesday included Arrow Financial Corp. (Nasdaq:AROW), which rallied some 29%, closing at $29.41 just a day after slipping to a low of $17.56. Greenlight Capital Re Ltd. (Nasdaq:GLRE) was up 28% and generated the highest daily close since July 7. Cypress Semiconductor Corp. (NYSE:CY) gapped higher and vaulted some 68% on impressive volume of 27.3 million shares.
Looking at the chart structure, the recovery move Tuesday in small-cap stocks was far less decisive than the move in large-cap index products, leaving essentially an inside session bounce back into a logical resistance zone around 680. If the market wavers here and resumes the downtrend, then support is at 666, then at 660. A breach of the latter once again would clear the way to retest the summer lows (something that has already happened in the S&P 500). From a short-term perspective, resistance Wednesday is at 688 and 697, while support comes in at 671 and 666.
The market retained diabolical volatility; just one day after Wall Street endured the worst day since the 1987 stock market crash, they enjoyed the best day in six years today. Financial stocks – especially banks – were back in favor today, helped by talk that accounting regulations could be changed to allow more favorable rules on asset valuation. The PHLX KBW Banking Index shot up 15.7%, which is a stunning one-day advance for that product. Among individual large-cap banks, Citigroup Inc. (NYSE:C) was up 15.6%, while JP Morgan Chase & Co. (NYSE:JPM) rallied 13.9%.
The market took heart in talk from President Bush that a financial rescue bill would still be resuscitated this week, which triggered a rush of pent-up buying from investors who see value at current levels. That said, recent volatility underscores that the tone can shift violently at a moment’s notice.
Although investors are too preoccupied with the to and fro between Wall Street and Washington on the rescue plan front to pay much attention to economic data, a couple of reports this morning topped the forecast and likely helped retain the positive mood. The Chicago Purchasing Manager’s Survey came in at 56.7, which was well clear of the 54 projection and the consumer confidence figure was at 59.8, also well above the consensus forecast of 55.0. As we creep closer to Friday’s big employment report, look for the economic data to take on a little bit more of the spotlight, even if the big news remains the drive for a historic bail-out for banks clogged down with bad debt.
Investors will likely bid good riddance to the month of September, which has a rough history on the stock market and certainly took a toll again this year. The month of September 2008 could very well be remembered in investment history as a period of dramatic change for banking, insurance and financial industries.
For the month, the S&P 500 was down 9.1% for the worst performance in six years and the Nasdaq 100 was off 12%, marking the worst September since the 2001 terrorist attacks. The Russell 2000 was off 8.1%, even with the nice lift on the final day of the month.
Broad market sectors on the rise today were highlighted by automobile manufacturers, which jumped some 20%. Outside of that, the best sectors were dominated by financial themes, with thrifts, regional banks, specialize finance firms, property and casualty insurance companies, diverse financial services and asset managers all notching double digit advances on the day. The only downside sectors of note were gold and food distributors. For the month of September, thrifts collapsed 58% and multiline insurance companies evaporated 57% of their asset value. Even though banks and insurance companies dominated the headline losers in September, steel shares were off 36%, metals and mining stocks were down 35% and coal stocks off 32%. Footwear and diverse finance services stocks were the only S&P sectors to post double digit gains for the month.
Individual small caps of note Tuesday included Arrow Financial Corp. (Nasdaq:AROW), which rallied some 29%, closing at $29.41 just a day after slipping to a low of $17.56. Greenlight Capital Re Ltd. (Nasdaq:GLRE) was up 28% and generated the highest daily close since July 7. Cypress Semiconductor Corp. (NYSE:CY) gapped higher and vaulted some 68% on impressive volume of 27.3 million shares.
Looking at the chart structure, the recovery move Tuesday in small-cap stocks was far less decisive than the move in large-cap index products, leaving essentially an inside session bounce back into a logical resistance zone around 680. If the market wavers here and resumes the downtrend, then support is at 666, then at 660. A breach of the latter once again would clear the way to retest the summer lows (something that has already happened in the S&P 500). From a short-term perspective, resistance Wednesday is at 688 and 697, while support comes in at 671 and 666.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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