Small-cap stocks struggled again on Tuesday, unable to shrug off awful data on home sales, which were so bad they defied claims that the housing market has bottomed. Retailer shares also were a drag on the market as stores are getting a chilly reception this holiday season from consumers. The Russell 2000 (NYSE:IWM) closed down 6.44, or 1.35%, at 468.64, and is now down 39% for the year. Meanwhile, the Dow is off 37% for 2008, and the S&P 500 is down 41%, as the stock market limps into the final six trading sessions of a year that could be the worst since the Great Depression era.

With a short trading week in tow, the market is getting force-fed a sizable batch of economic data into just a two-day window. The first run of data today had mixed signals; on a positive note, consumer sentiment perked up more than expected in the latest Reuters/Michigan sentiment survey, rising to 60.1, compared with a consensus projection of 58.6. While that’s still a low reading historically, it raises some hope that sentiment is finally on an upswing.

As for the “not-so-good” economic news, the latest picture of the nation’s housing market came in much worse than feared. New home sales tumbled 2.9% to an annualized rate of 407,000 units, below the forecast of 415,000 units. But the really bad news was seen for existing home sales, which make up the lion’s share of housing activity. Existing home sales crumbled 8.6% for the worst decline in 11 years and the rate plunged to 4.49 million units – way below the projection for 4.93 million units. Even more disheartening is that the median home price fell 13.2%, the largest percentage decline in 40 years of collecting data. And it’s not like the bargain basement prices cleaned up inventory either – in fact, the supply of homes is still pegged at 11.2 months (16.7 months for condos). There are many market watchers who believe that the stock market won’t be able to find a bottom until the housing market turns around and these numbers certainly didn’t instill confidence on that front.

“Existing home sales peaked during the summer of 2005 and fell steadily through September 2007. From then through October 2008, home re-sales had been relatively flat, suggesting a bottom may have been reached. However, sales slumped again in November, reflecting the effects of the credit crunch,” Steven Wood, chief . . .

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