Second rally day a charm for small caps

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Small-cap stocks shot higher Monday, adding to the big rise from Friday afternoon as the market found relief in a big rescue plan for the nation’s No. 2 bank and continued to express enthusiasm for economic staff appointments by President-elect Obama. The Russell 2000 (NYSE:IWM) closed up 30.24, or 7.44%, at 436.78, generating the largest two-day surge since the short-lived Oct. 10 bottom. For the year, the Russell is down 43%, while the Dow is off 36% and the S&P 500 is down 42%.

The day got off to a rocking start on news that the government would guarantee some $306 billion in toxic assets from Citigroup Inc. (NYSE:C). The nation’s No. 2 bank had been in collapse mode in recent days, sparking fear that the bank could fail or be forced to sell off assets, which in turn could trigger systemic risk in the financial landscape. In addition to the asset guarantee, the government announced a direct $20 billion injection into Citigroup, all of which was good news for shareholders, as Citigroup’s stock jumped some 51% today. The PHLX KBW Banking Index surged 16%.

Energy and commodity names were a big part of the rally today, as beaten down stocks in those arenas benefited from both the stock market rally and by a sharp decline in the U.S. dollar against the euro. Crude oil prices caught fire today, climbing $4.57 a barrel, or 9.1%, providing a boost to energy companies in the process. The Financial Select Sector SPDR Fund rose 8.4%.

Another downtrodden area that caught investor enthusiasm today was the retail universe, fitting as we head toward the big “Black Friday” kick off of the official holiday shopping season. The S&P Retail Index jumped 10% and several small-cap retailers benefited from a wave of bargain hunting on that front.

President-elect Obama served up his second major press conference today since he won the vote in early November. The market rallied hard late Friday when news of some of his top picks for economic advisor positions started to leak out. The big news of course was that Obama had tabbed New York Federal Reserve President Timothy Geithner as Treasury Secretary, and today Obama ran down the rest of . . .

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