A great day for small caps
The Russell 2000 (NYSE: IWM) jumped more than 3% today as investors seized on speculation of an upcoming interest rate cut. The small-cap index gained 26.77 points, or 3.60%, to 770.04. The Dow Jones Industrial Average (INDU) added 331.01 points, or 2.55%, to 13,289.45.
On a year-to-date basis, the Russell 2000 has lost 2.21%, while the Dow has advanced 6.53% and the S&P 500 is up 3.70%.
The bulls completely dominated today’s session, their enthusiasm fueled by speculation that the U.S. Federal Reserve is considering lowering its target interest rate when it next meets on Dec. 11.
It all started with U.S. Federal Reserve vice chairman Donald Kohn, who told an audience in New York the current economic conditions “require flexible and pragmatic policymaking—nimble is the adjective I used a few weeks ago.”
“The increased turbulence of recent weeks partly reversed some of the improvement in market functioning over the late part of September and in October,” Kohn explained. “Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses.”
Investors interpreted the remarks as a sign that the U.S. central bank is mulling a cut in the federal funds rate, the rate at which commercial banks make overnight loans to each other. The Fed lowered the rate to 4.50% from 4.75% when it last met on Oct. 31.
Stocks opened strong and added to their gains as the session progressed.
It’s a good thing Kohn focused investors’ attention away from the economy, because the data that came out today painted a bleak picture.
Orders for durable goods, which are goods intended to last at least three years, unexpectedly declined 0.4% in October to $214.45 billion, according to the U.S. Census Bureau. Economists were expecting orders to stay put.
New orders for non-defense capital goods, an important measure of business spending, fell 3.1% to $72.5 billion. Business spending is about 20% of U.S. gross domestic product.
Turning now to housing, the National Association of Realtors reported a 1.2% drop in U.S. existing home sales. Sales for October fell to an annual pace of 4.97 million from revised 5.03 million in September. Economists were expecting a more modest decline.
The national median existing-home price was $207,800 in October, down 5.1% from $218,900 from October 2006.
However, there was a silver lining.
“Mortgage availability has improved as evidenced by much lower mortgage interest rates and a sharp jump in FHA endorsements for home purchases,” said Lawrence Yun, NAR chief economist, in a statement.
Mortgage loans insured by the Federal Housing Administration are designed for low to moderate income borrowers who are unable to make a large down payment and are popular among first-time buyers.
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:
• Security Capital Assurance Ltd. (SCA), up 26% to $6.69. A company representative could not be reached for comment.
• Penwest Pharmaceuticals Co. (PPCO), up 24% to $6.20. A company representative could not be reached for comment.
• Exide Technologies (XIDE), up 21% to $6.85. A company representative could not be reached for comment.
Biggest percentage losers:
• Acorn International, Inc. (ATV), down 18% to $10.10 on news that third-quarter net income came in below expectations.
• The Pep Boys-Manny, Moe & Jack (PBY), down 16% to $11.51 on news the auto parts retailer posted a wider third-quarter loss and will close 31 stores and lay off 550 workers.
• BIDZ.com, Inc. (BIDZ), down 15% to $10.10 even though the CEO has denied a report claiming the company engages in shill bidding and holds excessive inventory.
Volume leaders:
• BIDZ.com, Inc. (BIDZ) 11,454,000 shares traded.
• Spansion Inc. (SPSN) 4,843,900 shares traded.
• Palm Inc. (PALM) 4,518,800 shares traded on news the company introduced its smartphone on a network in Mexico.
The day saw 29 small-cap stocks set 52-week lows, while eight small caps established 52-week highs.
