Small-cap stocks stormed higher in the final 45 minutes of trading, shooting higher on optimism for a big weekend announcement out of G7 finance leaders. The comeback move was likely heightened by oversold conditions ahead of the weekend. Until the late rally, stocks remained in collapse mode for most of Friday as investors pulled money out of equities fearing a prolonged recession amid the global credit crisis. The Russell 2000 (NYSE:IWM) gained 23.28, or 4.66% to 522.48, shooting nearly 12% off an intraday trough that marked the lowest point since August 2003. In what will be forever remembered as a historic week for the stock market, small-caps still shed 96.92, or 15.6% in an unprecedented collapse this week. For the year, the Russell is now down 31.7%, while the Dow is off 36.2% and the S&P 500 is down 38.7%. Small caps are now down 39% from the 2007 record highs, and at the lows today were fast approaching typical declines in the 50% range seen in previous recessions over the last 40 years.

From a charting and index perspective, the late recovery move in stocks today was paced by small caps, which was an encouraging sign. Small caps have been underperforming on the way down in this collapse after over performing their large-cap brethren for years on the way up. If small caps start to show a leadership role in the coming days, it could be a sign that a bottom, or at least stabilization is nearby. All that said, one could argue that it would have been surprising to see the stock market NOT have an oversold bounce ahead of the weekend with the potential promise of a G7 finance statement in the works, so there will still be a desire next week for the market to show that today’s recovery has traction.

This week’s collapse gained momentum despite dramatic moves by central bankers around the world to unclog credit lines. For the first time since the recession gripped the nation in the shadow of the 9/11 attacks seven years ago, central bankers gift wrapped a coordinated rate cut for the market, with the United States, United Kingdom, Eurozone, Swiss, Canadian, Swedish and Chinese authorities . . .

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