Small-cap stocks took flight today, notching the biggest one-day gain of 2009, just one day after sinking to the worst performance of the New Year. The topsy-turvy world of equity market investing set aside the gloom from Tuesday’s slide amid strong earnings from technology bellwether IBM, and money flow benefited stocks as Treasury markets tumbled. The Russell 2000 (NYSE:IWM) soared 23.12, or 5.33%, to 456.76; for the year, small caps are still down 8.5%, on target for the worst January showing in more than 15 years. Meanwhile, the Dow is down 6.2% for the year and the S&P 500 is off 7%.

The fact that small caps led the way on the rally today is a positive sign amid plenty of gloom for the marketplace. Investors will have to become more comfortable embracing risk for the market to truly rally off these bear market lows, and putting their faith in small caps would be an interesting development — but as you can see by the yearly return, that leap of faith hasn’t been made yet.

The market was oversold on short-term momentum studies entering the session after suffering the worst inauguration day collapse in history. An upbeat profit reading from International Business Machines (NYSE:IBM) set the stage for a bounce back rally today, but the market still needs to extend the move to suggest that the inauguration day slide was the anomaly and not today’s recovery.

The market has been buffeted with poor profit reports for months and a . . .

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