Obama cabinet moves spark stock market surge

Kevin Pendley | Nov 21, 2008 4:34pm EST | Comment

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Small-cap stocks stormed out of negative territory late in the day, avoiding what looked like a sixth consecutive losing session when an oversold, thin market caught a bid in conjunction with news on the Obama leadership team. Despite the upbeat late rally, the Russell 2000 (NYSE:IWM) still tumbled to fresh bear market lows earlier in the day and closed out the week at the lowest point since April 2003. For today, small caps were up 21.22, or 5.51%, to 406.53, but are still down 47% for the year. Large-cap stocks fared better today, with the Dow up 6.54% and the S&P 500 up 6.32%. For 2008, the Dow is off 39% and the S&P 500 is down 45%.

And even though large caps outperformed small caps today, it’s not all wine and roses for big companies either. On Thursday, the S&P 500 tumbled to 11-year lows and a string of huge, name-brand companies continue to shrivel in front of our eyes. This week, the hammer came down on Citigroup Inc. (NYSE:C) as what used to be world’s largest bank (currently No. 2 U.S. bank) saw its stock collapse 19% today and some 70% in just the month of November. There were reports that Citigroup executives were considering selling off some business units, or perhaps the entire bank.

The market rallied into positive territory late in the day on news that Timothy Geithner, president of the New York Federal Reserve, was tabbed by President-elect Obama as the new Treasury Secretary. Obama is expected to announce his economic advisory staff early next week, which could soothe rattled investors. The New York Times also reported that Obama’s election rival Hillary Clinton would accept his nomination to the Secretary of State post.

From a charting perspective, it’s important to note that the market is oversold on momentum readings heading toward a holiday week, which could have played a supportive role in today’s action. In addition, there was some talk that options expiration activity today also could have been a supportive influence. Either way, the market will still need to confirm today’s upside push over a longer time frame, on solid volume and with bullish chart patterns to suggest that any kind of noteworthy bottom is in play. Looking ahead to next week’s action, the market will likely see limited volume, especially right before and after Thursday’s Thanksgiving Day holiday in the United States. The highlight on the economic calendar will likely be Tuesday’s GDP report, which is expected to show the nation’s economy contracted by 0.5% in the third quarter.

Financial stocks were a dominant drag on the market for most of today’s action until the last 30 minutes when the rally kicked off, and the earlier pinch on financials hit small caps especially hard. The Financial Select Sector SPDR Fund was basically flat today and the before the late stock market bounce the list of largest percentage declines was heavily populated with various banks — big and small — and other companies with financial businesses.

Energy stocks were leading the market today, but the move seemed much more pronounced on the big-cap ledger. Crude oil prices edged higher today, gaining $0.51 a barrel, or about 1%, while recovering from a slide to 3 1/2-year lows. Meanwhile, the Energy Select Sector SPDR was up some 10%.

Yields on Treasury products shot higher today, correcting from the massive decline that was seen during Thursday’s panic push for safe-haven outlets. The yield on 10-year notes rose some 6.6% today, but the fact that small-cap stocks struggled relative to large caps reflected the fact that investors remain very risk intolerant.

On a strict percentage basis, six of the top 10 percentage gainers had links to mining companies, so it appeared that investors caught a little “gold fever” ahead of the weekend. Gold futures were up some 7% today, but the real story was on the equities side of things. While many of the big movers were large caps, some of the firms did fall into our small-cap designation, including Pan American Silver Corp. (Nasdaq:PAAS), which rallied 30% and Silver Standard Resources Inc. (Nasdaq:SSRI), which gained 22%. Outside of precious metals, Hughes Communications Inc. (Nasdaq:HUGH) rose 33% as the broadband satellite network solution company staged a nice rally off Thursday’s 52-week lows (bouncing off 52-week lows from Thursday was a common theme today). On the downside, Switch & Data Facilities Co. Inc. (Nasdaq:SDXC) tumbled 22% as the Internet network data company carved out new lows.