Barron’s Highlights Small-Cap Outlook from Growth Report

posted by   Ian Wyatt   |    January 28, 2009

Posted in   Small Cap Stocks   |   Comments (5)

Dow Jones' Barron's last weekend printed an excerpt from Business Financial Publishing's Growth Report newsletter, which I founded in 2001 and currently serve as the Editor-in-Chief and Chief Investment Strategist.  The below except discusses the performance of small cap stocks last week, as written by our analyst Kevin Pendley.  PR is always great when you get it, and exposure in the premier weekly investing publication is a great accomplishment.

Sideways Consolidation
Market Review by Growth Report / Business Financial Publishing
1015 18th St. N.W., Washington, D.C. 20036

Jan. 21: Small-cap stocks took flight [Wednesday], notching the biggest one-day gain of 2009 -- just one day after sinking to the worst performance of the new year [and the worst ever recorded for a presidential inauguration day] -- amid strong earnings from technology-bellwether IBM ... . The fact that small-caps led the way on the rally 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 that leap of faith hasn't been made yet ... .

The market has been buffeted with poor profit reports for months, and a majority of the news so far this year has been gloomy, but when IBM beat the estimate after Tuesday's close, it raised hope that things aren't as bad as feared. In addition, bank stocks have been relentlessly hammered in recent days, but Northern Trust handily beat the forecast as well, showing that not all banks are wallowing in a sea of red ink needing a handout from taxpayers to survive these rocky times. NTRS stock jumped 30% on [Wednesday], and IBM climbed 11%, providing a nice tech/financial one-two leadership punch.

Of course, that doesn't mean that everything is now all rosy for the market ... [Regarding housing,] it appears that a pickup in new sales in the near term is unlikely.

Energy prices provided a source of strength for the Wednesday, with energy stocks climbing 6.7%. Crude-oil prices rose 6.6% on the day -- those higher [prices came because] the New York market rolled out of the February contract into March, which has been trading at a steep premium to the February futures contract. Even after the close of the New York market, crude continued to climb, bolstered by the rise in equities, a slide in the U.S. dollar and production cuts out of the Organization of Petroleum Exporting Countries (OPEC).

Looking at sector activity [Wednesday], diverse financial-services shares, investment banks and brokerage companies, asset-management firms, banks and real-estate investment trusts were the biggest gainers....On the downside, automobile manufacturers, auto-parts suppliers, hypermarkets and apparel firms were soft performers, but losses in those areas were much less pronounced than the gains for banks, financials and energy companies. Airline stocks struggled. It was nice to see the Russell [2000] climb back above 450 quickly, but the overall market path remains a sideways consolidation, with a mild short-term bearish slant. A push above 466 would help further any bottoming argument here, while any slide back below 450 (and especially 440) would be damaging.

--Kevin Pendley

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