Russell 2000 falls despite rate cut
The Russell 2000 (IWM) and the other major indices posted significant declines despite news of an expected interest rate cut. The small-cap index dropped 9.71 points, or 1.38%, to 695.49. The Dow Jones Industrial Average (INDU) shed 37.47 points, or 0.30%, to 12,442.83.
On a year-to-date basis, the Russell 2000 has let go 9.21%, while the Dow has declined 6.20% and the S&P 500 has dropped 7.67%.
“Financial markets remain under considerable stress, and credit has tightened further for some businesses and households,” the Federal Open Market Committee said in a statement this afternoon, explaining its decision to lower its target federal funds rate 0.50% to 3%.
“Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity,” said the FOMC.
The move follows an emergency rate cut on Jan. 22, which saw the target interest rate fall to 3.5% from 4.25%. The Fed is acting aggressively to prevent an economic recession and today promised to “act in a timely manner as needed” in order to address “downside risks to growth.”
The Dow and the other major indices immediately took off and began posting gains, while the Russell 2000 took about 30 minutes to escape from the bears and settle on an upward trajectory.
Just when it looked like small-cap stocks would post a gain for the third consecutive session, the market abruptly turned negative in the final minutes of trading and went into free fall on news that Wall Street bond rating agencies could downgrade Ambac Financial Group, Inc. (NYSE: ABK) and MBIA Inc. (NYSE: MBI), two of the biggest bond issuers.
Should the bond issuers, who have suffered due to the meltdown in the subprime mortgage market, be downgraded they would likely be forced to sell billions of insured debt. Many investors are obligated to invest only in securities with top-ratings.
The two companies face additional problems. The Connecticut Attorney General said that he has subpoenaed them as part of a probe to determine who is at fault for the mess in the subprime mortgage sector.
Otherwise, stocks large and small spent the first half of the session in the red following news that U.S. gross domestic product grew at an annual rate of just 0.6% during the final three months of 2007, dragged down by the ongoing stagnation in the housing sector and a decline in inventories.
An economic slowdown was expected, but the figure reported by the U.S. Commerce Department is below the 1.2% projected by analysts surveyed by Reuters.
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:
• B+H Ocean Carriers Ltd. (BHO), up 23% to $13.05.
• Irwin Financial Corp. (IFC), up 22% to $8.99.
• TBS International Ltd. (TBSI), up 20% to $30.91.
Biggest percentage losers:
• Hutchinson Technology Inc. (HTCH), down 33% to $16.18 on news of a decline in fiscal first-quarter revenue.
• Keynote Systems, Inc. (KEYN), down 28% to $9.20 on news of a second-quarter revenue guidance that fell short of analysts’ projections.
• Municipal Mortgage & Equity, LLC (MMA), down 22% to $7.13 on news that it may not be able to maintain its quarterly dividend.
Volume leaders:
• Hutchinson Technology Inc. (HTCH) 6,291,700 shares traded.
• IndyMac Bancorp, Inc. (IMB) 6,015,100 shares traded.
• Hovnanian Enterprises, Inc. (HOV) 5,785,800 shares traded.
The day saw 28 small-cap stocks set 52-week lows, while one small-cap established a 52-week high.
