Small caps make it 4 in a row; investors thanking "Obama-nomics"
Small-cap stocks remained in an upward holding pattern ahead of Thursday’s Thanksgiving Day holiday in the United States, with the Russell 2000 (NYSE:IWM) notching four consecutive higher closes for just the second time since the Memorial Day holiday back in late May. Technology shares, energy stocks and telecoms helped power the rise today. In addition, investors continue to applaud President-elect Obama’s choices for his economic team, this time giving a thumbs up for his choice of chief for his economic advisory board – former Federal Reserve Chairman Paul Volcker. The Russell 2000 closed up 25.68, or 5.79%, at 468.86 and is now down 39% for 2008. The Dow trailed gains in small caps, gaining just 2.91% Wednesday, but is still beating small caps for the year, with a loss of 34%. The S&P 500 was up 3.53% Wednesday and is down 40% for the year.
The higher close today flew in the face of a bevy of dreary economic data, highlighted by a durable goods report that showed orders fell off 6.2%, the largest drop in more than two years. Durables can be a volatile data series, and is sometimes written off when a big swing in aircraft orders skews the numbers. But this time around, the drop in orders was broad-based and shipments were down as well, not a good sign for the manufacturing sector of the U.S. economy. Speaking of manufacturing, a report on Midwest manufacturing – the Chicago Purchasing Manager’s Survey – came in at 33.8, which wasn’t just well off the forecast of 38.0, but was also the lowest reading in 26 years. Elsewhere on the data front, the weekly unemployment claims met projections, but was still dreadfully close to last week’s 26-year highs on continuing claims. New home sales tumbled 5.3% to the lowest level since January 1991. And oh yeah, just to emphasize a worrisome picture into the holiday season, consumer sentiment as measured by the Michigan sentiment survey tumbled to 55.3, below the consensus projection of 57.9 and at the lowest point since 1980.
Given all that bleak news, it was an impressive show of strength for the stock market to extend the recent upside push and the market appeared to turn around for good after a sloppy start roughly in conjunction with the latest Obama appointment news. There is a sense among investors that Obama’s recent push to create his economic team reflects the priority his administration will put on turning around current economic woes, and also expectations that his plan will include a hefty stimulus package, building on the recent credit and financial market hand-outs set in motion by the current administration.
The stock market rally today also came without the benefit of money flow out of credit instruments. Yields (which move inverse to price) on Treasury bonds and notes tumbled again today, with the benchmark 10-year note sinking below 3% yields on a daily closing basis for the first time in some 50 years. In general, demand for U.S. assets was strong today, with bonds higher, stocks higher and the dollar higher.
Even though the greenback was in rally mode with the rest of U.S. assets, it didn’t have the typical chilling impact on commodities. In fact, the Commodity Research Bureau Index jumped some 3.3% today and crude oil futures surged 7% even though inventory data showed an upward spike in crude stocks. The resilient tone in commodities helped commodity-themed stocks perform well today, which was a boon to the small-cap universe as well. The Energy Select Sector SPDR Fund was up 4.7%.
The market was also able to overcome bleak profit forecasts from a host of companies this morning, running the gamut from high-end jeweler Tiffany & Co. (NYSE:TIF) to farm machinery manufacturer Deere & Co. (NYSE:DE). Among broad S&P sector groups today, automobile manufacturers were the stars. There might not be much to be thankful for in Detroit these days, but today’s action will be a welcome note for investors stuck holding losing positions in car makers. General Motors Corp. (NYSE:GM) was up 33%, while Ford Motor Co. (NYSE:F) was up 31%. Analysts at Deutsche Bank said that the chances for U.S. automakers to receive a generous bailout package from lawmakers has improved.
Individual small caps joining GM in the fast lane today included ATP Oil & Gas Corporation (Nasdaq:ATPG), which jumped 40% as the offshore oil and gas production company benefited from the rally in energy markets amid oversold conditions after slipping to 52-week lows last week. Wimm-Bill-Dann Foods OJSC (NYSE:WBD) rallied 34% as Russia’s largest dairy company continues to see volatility off the recent collapse in commodity stocks. WBD is just another in a long line of small caps trying to attract bargain hunters to record low share prices. WBD was trading above $140 back in May, today it is trading below $25. Lennar Corp. (NYSE:LEN.B) rose 33% even though the homebuilder was put on credit watch by Standard & Poor’s. Homebuilder shares in general were among the best performers today, even though several had credit ratings slashed. For instance, small-cap homebuilder Centex Corp. (NYSE:CTX) pushed up 21% despite a credit downgrade.
Small caps are now testing a logical stall point near 468. If the market can mount a decisive push through that area, then the next resistance zone comes in near 482, then at 494 and 505. Persistent action above 450 would dramatically help the bottoming argument, provide validation of the bullish reversal pattern off last week’s lows and suggest that the dramatic slide through 450 was an “overshoot” of the low, which often happens in frantic situations. Looking ahead to the resumption of trading Friday, the market will close early in a “post” observance of the holiday, and also to allow brave souls a chance to join in on the “Black Friday” rush of shoppers to kick off the official holiday season (or perhaps to recuperate from indigestion off heavy Thanksgiving Day meals). With many simply taking off Friday to extend the weekend, volume could be quite thin and there are no fresh economic events on the calendar to worry about either, a welcome respite before a bunch of reports next week, including the big monthly employment release.
The higher close today flew in the face of a bevy of dreary economic data, highlighted by a durable goods report that showed orders fell off 6.2%, the largest drop in more than two years. Durables can be a volatile data series, and is sometimes written off when a big swing in aircraft orders skews the numbers. But this time around, the drop in orders was broad-based and shipments were down as well, not a good sign for the manufacturing sector of the U.S. economy. Speaking of manufacturing, a report on Midwest manufacturing – the Chicago Purchasing Manager’s Survey – came in at 33.8, which wasn’t just well off the forecast of 38.0, but was also the lowest reading in 26 years. Elsewhere on the data front, the weekly unemployment claims met projections, but was still dreadfully close to last week’s 26-year highs on continuing claims. New home sales tumbled 5.3% to the lowest level since January 1991. And oh yeah, just to emphasize a worrisome picture into the holiday season, consumer sentiment as measured by the Michigan sentiment survey tumbled to 55.3, below the consensus projection of 57.9 and at the lowest point since 1980.
Given all that bleak news, it was an impressive show of strength for the stock market to extend the recent upside push and the market appeared to turn around for good after a sloppy start roughly in conjunction with the latest Obama appointment news. There is a sense among investors that Obama’s recent push to create his economic team reflects the priority his administration will put on turning around current economic woes, and also expectations that his plan will include a hefty stimulus package, building on the recent credit and financial market hand-outs set in motion by the current administration.
The stock market rally today also came without the benefit of money flow out of credit instruments. Yields (which move inverse to price) on Treasury bonds and notes tumbled again today, with the benchmark 10-year note sinking below 3% yields on a daily closing basis for the first time in some 50 years. In general, demand for U.S. assets was strong today, with bonds higher, stocks higher and the dollar higher.
Even though the greenback was in rally mode with the rest of U.S. assets, it didn’t have the typical chilling impact on commodities. In fact, the Commodity Research Bureau Index jumped some 3.3% today and crude oil futures surged 7% even though inventory data showed an upward spike in crude stocks. The resilient tone in commodities helped commodity-themed stocks perform well today, which was a boon to the small-cap universe as well. The Energy Select Sector SPDR Fund was up 4.7%.
The market was also able to overcome bleak profit forecasts from a host of companies this morning, running the gamut from high-end jeweler Tiffany & Co. (NYSE:TIF) to farm machinery manufacturer Deere & Co. (NYSE:DE). Among broad S&P sector groups today, automobile manufacturers were the stars. There might not be much to be thankful for in Detroit these days, but today’s action will be a welcome note for investors stuck holding losing positions in car makers. General Motors Corp. (NYSE:GM) was up 33%, while Ford Motor Co. (NYSE:F) was up 31%. Analysts at Deutsche Bank said that the chances for U.S. automakers to receive a generous bailout package from lawmakers has improved.
Individual small caps joining GM in the fast lane today included ATP Oil & Gas Corporation (Nasdaq:ATPG), which jumped 40% as the offshore oil and gas production company benefited from the rally in energy markets amid oversold conditions after slipping to 52-week lows last week. Wimm-Bill-Dann Foods OJSC (NYSE:WBD) rallied 34% as Russia’s largest dairy company continues to see volatility off the recent collapse in commodity stocks. WBD is just another in a long line of small caps trying to attract bargain hunters to record low share prices. WBD was trading above $140 back in May, today it is trading below $25. Lennar Corp. (NYSE:LEN.B) rose 33% even though the homebuilder was put on credit watch by Standard & Poor’s. Homebuilder shares in general were among the best performers today, even though several had credit ratings slashed. For instance, small-cap homebuilder Centex Corp. (NYSE:CTX) pushed up 21% despite a credit downgrade.
Small caps are now testing a logical stall point near 468. If the market can mount a decisive push through that area, then the next resistance zone comes in near 482, then at 494 and 505. Persistent action above 450 would dramatically help the bottoming argument, provide validation of the bullish reversal pattern off last week’s lows and suggest that the dramatic slide through 450 was an “overshoot” of the low, which often happens in frantic situations. Looking ahead to the resumption of trading Friday, the market will close early in a “post” observance of the holiday, and also to allow brave souls a chance to join in on the “Black Friday” rush of shoppers to kick off the official holiday season (or perhaps to recuperate from indigestion off heavy Thanksgiving Day meals). With many simply taking off Friday to extend the weekend, volume could be quite thin and there are no fresh economic events on the calendar to worry about either, a welcome respite before a bunch of reports next week, including the big monthly employment release.
About the Author
Kevin Pendley covers the Russell 2000 index for SmallCapInvestor.com and writes a weekly technical analysis column.
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