Talk of accounting rule suspension sparks recovery bounce

Small-cap stocks reversed morning losses and climbed into positive territory, sparked by talk that the “mark-to-market” accounting rules might be suspended to provide additional relief to banks and financial institutions to weather the current crisis. In addition, solid action for tech stocks and gains for retailers amid same-store sales reports provided further bullish fodder. At 12:10 p.m. ET, the Russell 2000 (NYSE:IWM) was up 9.15, or 2.04%, at 457.62.

Bank stocks were an early drag on the market, with Bank of America Corp. (NYSE:BAC) sinking to 25-year lows, but bank and other financial shares rallied off the morning lows as the accounting rule talk made the rounds. There is hope that next week’s announcement from the Obama Administration about the stimulus plan may include changes or suspension of the “mark-to-market” rules. The KBW Banking Index rallied about 6% off the early low and briefly traded in positive territory.

Outside of the recovery bounce in financials, the stock market also found support from tech shares, which were supposed to be an eyesore today following downgraded revenue projections from Internet enabler Cisco Systems Inc. (Nasdaq:CSCO). After trading lower in pre-market activity, Cisco moved into positive territory today, providing a spark for tech stocks in general. Also, semiconductor shares were on a roll into mid-session, also lifting tech shares.

Retail stocks also provided a surprising source of strength today, despite a bevy of mostly disappointing monthly sales reports. The standard-bearer for the upside was probably Wal-Mart Stores Inc. (NYSE:WMT) as the world’s largest retailer and discount provided topped the monthly same-store sales forecast, providing hope to investors that consumer spending might not be as awful as feared. Even though individual store results were spotty, the S&P Retail Index was up about . . .

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