Liquidity boosts lifts small caps
The Russell 2000 (NYSE: IWM) is posting solid gains on news that central banks around the world are pumping cash into money markets. At 2:33 p.m. ET, the small-cap index was up 7.04 points, or 0.92%, to 773.31. The Dow Jones Industrial Average (INDU) had added 67.14 points, or 0.50%, to 13,499.91.
Small-cap stocks are going strong following news before the start of trading that the U.S. Federal Reserve and four other major central banks are joining hands to inject billions into global money markets to boost liquidity and spur lending.
The U.S. central bank will create a Term Auction Facility program to auction term funds to depository institutions against collateral that can be used to secure loans, according to its statement.
The program will provide banks in good financial condition with billions in short-term funds. The loans will be at rates below the rate charged on direct loans from the Fed to banks but will still be backed by the same type of collateral obligations.
A number of major banks have reduced the flow of credit to businesses and consumers following the meltdown in the subprime mortgage market, which left many financial institutions with billions in losses as foreclosures and loan delinquencies made securities backed by subprime mortgages essentially worthless.
Case in point: today Bank of America Corp. (NYSE: BAC) announced that it anticipates write-downs of over $3 billion in the fourth quarter on collateralized debt obligations. However, the Charlotte, N.C.-based giant said that it will most likely still be profitable.
Similarly, Wachovia Corp. (NYSE: WB) said that its fourth-quarter write-downs will be more than during the third quarter, when the amount came to $1.3 billion.
Economists are forecasting that the credit squeeze will negatively affect economic growth.
Elsewhere, the price of oil has shot up $4.19 to $94.21 following news of a report from the Energy Information Administration that weekly U.S. crude oil inventories have declined more than expected for the week ended Dec. 7.
Here are the current biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• Nextest Systems Corp. (NEXT), up 63% on news it is being purchased by Teradyne Inc. (TER) for $325 million.
• EMCORE Corp. (EMKR), up 21% on news it will supply a solar power project in Ontario, Canada.
• Acadia Pharmaceuticals Inc. (ACAD), up 15% on news of an analyst upgrade.
Biggest percentage losers:
• American Dairy, Inc. (ADY), down 25% on news it has dismissed its public accounting firm and withdrawn its 2007 outlook.
• Force Protection, Inc. (FRPT) down 26% on news the company was initiated with a “sell” rating.
• CSK Auto Corp. (CAO), down 22%.
