A decline for small caps
The Russell 2000 (NYSE: IWM) ended the day in negative territory on news of economic data confirming a slowdown in growth. The small-cap index fell 1.43 points, or 0.18%, to 785.52. The Dow Jones Industrial Average (INDU) moved up 5.69 points, or 0.04%, to 13,625.58.
On a year-to-date basis, the Russell 2000 is off 0.24%, while the Dow has added 9.23% and the S&P 500 has advanced 6.22%.
Nonfarm payroll employment increased 94,000 in November, the U.S. Labor Department reported. That’s below October’s slightly upwardly revised total of 170,000 but just above economists’ projections.
The employment gains were led by the service sector, while manufacturing and construction shed jobs. Overall, the unemployment rate stayed put at 4.7%.
“Employment is a lagging indicator,” said Arun Raha, vice president of Economic Research and Consulting for the North American operations of reinsurance company Swiss Re, in an email. “The November increase in jobs growth, far less than in October, is consistent with slowing growth.”
The same report also showed that average hourly earnings climbed 0.5% to $17.63. That’s an increase of 3.8% from a year earlier, suggesting that the tight labor market is not putting much pressure on wages.
Small-cap stocks opened in the green but fell soon after. Trading was choppy from that point on, with the Russell 2000 index generally staying in the red.
Meanwhile, a separate report released by Reuters/University of Michigan showed that an index of consumer sentiment fell to 76.1 in the November, the lowest level in two years. The figure for October was 80.9.
Investors saw the decline as a bearish sign, but Raha cautioned against reading too far into the statistics.
“Income growth is a better indicator of consumer spending than consumer sentiment,” Raha said. “However, now with personal income growth slowing, I expect consumer spending growth to slow.”
That would be bad for the economy, because consumption is about 70% of gross domestic product.
Looking ahead to next week, all eyes will be on the U.S. Federal Reserve, which will convene on Dec. 11 to decide on monetary policy. Many expect the Fed to lower the federal funds rate, the rate at which commercial banks make overnight loans to each other, from the current level of 4.5% in order to avert a sharp economic slowdown.
“Given the weakness in the economy and the ongoing issues with the availability of credit, the Fed is likely to cut rates,” said Raha. “Inflation is not an issue, since the weakness in growth is reducing inflationary pressures.”
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• IMAX Corp. (IMAX), up 58% to $7.32 on news it will install 100 digital projection systems in AMC Entertainment Inc. theaters.
• ICO, Inc. (ICOC), up 23% to $14.39 on news of higher fourth-quarter profit.
• Liquidity Services, Inc. (LQDT), up 21% to $13.32 on news it forecasted first-quarter and fiscal 2008 earnings per share above analysts’ expectations.
Biggest percentage losers:
• Smith & Wesson Holding Corp. (SWHC) down 29% to $7.08 on news an analyst reduced the stock’s target price.
• Cascade Corp. (CAE) down 17% to $53.22 on news of third-quarter earnings below estimates.
• Palm, Inc. (PALM), down 13% to $5.74 on news of a lowered second-quarter revenue outlook.
Volume leaders:
• Palm, Inc. (PALM) 24,547,700 shares traded.
• Smith & Wesson Holding Corp. (SWHC) 12,401,200 shares traded.
• Cardiome Pharma Corp. (CRME) 9,957,100 shares traded after the U.S. Food and Drug Administration reviewed the company’s drug candidate.
The day saw 24 small-cap stocks set 52-week lows, while 17 small caps established 52-week highs.
