Recession fears sink small caps
The Russell 2000 (NYSE: IWM) is tumbling as news of a surprisingly weak report from the services sector raised fears of an economic recession.
At 11:31 a.m. ET, the small-cap index had retreated 11.18 points, or 1.55%, to 712.28. The Dow Jones Industrial Average (INDU) was down 247.12 points, or 1.96%, to 12,388.04.
The Institute for Supply Management’s index of non-manufacturing dropped to 41.9 in January from 54.4 in December, the trade association announced before the start of trading. The decline was broad-based, as new orders and employment also declined.
Economists were expecting a fall to 53. A reading above 50 indicates an expansion.
“This number is very weak, and is signaling a recession,” said Arun Raha, vice president of Economic Research and Consulting for the North American operations of reinsurance company Swiss Re, in an email. “The last time it was this low, we were in a recession.”
The services sector accounts for about 75% of U.S. gross domestic product.
Stocks small and large are falling, with makers of construction products and raw materials leading the way.
