Stubborn Russell clings to minor gain despite manufacturing slump

Kevin Pendley | Nov 03, 2008 4:29pm EST | Comment

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Small-cap stocks weathered dreadful manufacturing data, plunging car sales, slumping energy stocks and ongoing worries about the economy to post a minor gain Monday. Selling interest was offset by optimism over steady declines for inter-bank lending rates and ideas the bad news on the economy has already been priced into the stock market. The Russell 2000 (NYSE:IWM) closed up 0.97, or 0.18% at 538.50, posting the fifth consecutive higher close, something that hasn’t happened since early April. For the year, the Russell is now down 30%, while the Dow is off 30% and the S&P 500 is down 34%.

The market opened higher in line with yet another decline in Libor lending rates overnight, and was also bolstered by a gain in Asian stock markets. Even after the ISM Manufacturing Survey missed the forecast, small-cap stocks were reluctant to press the downside. It was interesting to note that today’s range of about 10 handles marked the smallest daily trading range since Aug. 26 and was easily the calmest session seen since the collapse began back in mid-September.

Perhaps some of the calm was tied to investors staying away from the market during a week of heavy economic event risk, or perhaps they were reluctant to aggressively take on positions ahead of Tuesday’s presidential elections in the U.S. Barack Obama is widely expected to carry the popular vote and usher in a transition to the White House, but market watchers are still keenly watching how the Senate and House races shape up. There is some thought that a huge sweep by the Democrats could spark some unrest for the stock market on the idea that the country tends to prefer a “balance” between parties in power.

As for the ISM Manufacturing report, it came in at 38.9%, well below the 50% line indicative of contraction in the manufacturing sector. The data clearly suggest that the economy has downshifted into recession-style economic activity, and today’s individual automaker vehicle sales numbers certainly didn’t paint a pretty picture either.

Sales at General Motors Corp. (NYSE:GM) were down 45% in October at 170,585 vehicles, compared with 310,008 last year. GM said that the “unprecedented” credit crunch had a dramatic impact on the U.S. economy and that plunging consumer confidence devastated sales activity. With a few companies still left to report results, October vehicle sales were on a pace of 10.7 million annualized units, the lowest in some 25 years. GM shares were off 2.7%, while Ford Motor Co. (NYSE:F) was down 1.8%.

Despite the gloom on the manufacturing front, there were positive signs on consumer staples, airlines and technology sectors. Airlines appeared to get a lift from another pullback in crude oil prices, which were down $3.90 a barrel, or about 5.7%. The AMEX Airline Index rose 5.6% to the highest point since Sep. 22 and is now up 85% since the Oct. 10 low.

Even though massive discount retailer Wal-Mart Stores Inc. (NYSE:WMT) rose 0.5% on an analyst upgrade, other retailers didn’t fare so well. The S&P Retail Index was off 3.4% as worries about the economy keep dark clouds on the key upcoming holiday shopping season.

Individual small caps on the move today included AtriCure Inc. (Nasdaq:ATRC), which gapped lower and plunged 39% on unusually heavy volume on news that the firm was being investigated by the Department of Justice for potential false claims linked to the company’s surgical devices. Ness Technologies Inc. (Nasdaq:NSTC) was off about 22% as the IT provider’s earnings numbers didn’t sit well with investors. Lydall Inc. (NYSE:LDL) was down 18%, also tied to earnings news. On the upside, CVR Energy Inc. (NYSE:CVI) rallied 26%, extending a big rally from Friday and ahead of earnings news slated for Thursday. Safe Bulkers Inc. (NYSE:SB) jumped 17% as the provider of marine transportation services pushed above the 20-day moving average for the first time since Sep. 3.

The Russell 2000 closed above the 20-day moving average today for the second consecutive session, something that has not happened since the entire stock market autumn collapse took place. The market faces resistance Tuesday at 546.50, then at 550; support is pegged at 526, 520 and the key downside number is at 514.50. Tuesday is about the only light day on the economic calendar this week, with factory orders on tap for 10:00 a.m. ET.