Stimulus deal helps spark modest rally

Small-cap stocks edged higher Wednesday, finding an afternoon reprieve when news broke that a deal was hammered out on the stimulus bill, which lifted the market back up out of the red. Downtrodden bank and financial stocks provided a lift to the market, as did gold stocks, helping to counter weakness in the technology arena. The Russell 2000 (NYSE:IWM) closed up 2.18, or 0.49%, at 447.95 and is now down 10.3% for the year. Meanwhile, the Dow is off 9.5% for 2009, while the S&P 500 is down 7.6%.

The market still seemed a little shell shocked after Tuesday’s swoon when the bank rescue plan didn’t seem to play well with investors. Reaching a deal on the stimulus plan was just a matter of timing and there is a sense that it will take many months for the plan to generate help for the struggling economy, so perhaps it’s not a surprise that bounce off the stimulus deal didn’t seem to have a lot of traction. For the record, the deal comes in at $789 billion and a vote on the final product could take place Thursday and would most likely get a very fast stamp of approval from the White House.

In other policy events today, banking executives spent the day in Washington testifying about the first batch of TARP money that was doled out last year. Bank shares were a bright spot for the market today, with the KBW Banking Index rising about 5%. Small-cap banks dominated the biggest percentage gainers today, with firms like First M&F Corp. (Nasdaq:FMFC) climbing back from a big slide Tuesday. FMFC gained about 21% on the session. Small-cap bank Marshall & Ilsley Corp. (NYSE:MI) rose 12% today, gaining back some of the 26% spiral from Tuesday; still MI shares are down about 85% from the September 2008 peak.

Gold stocks were a source of strength today, likely bolstered by investors looking for a hard goods safe haven away from struggling equities and also amid talk that asset managers have been ramping up allocation percentages on gold investments. Gold futures climbed some 3% on the day, while the Gold and Silver Index . . .

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