Small caps dislike stimulus offer
The Russell 2000 (NYSE: IWM) fell as investors were not impressed with a stimulus package designed to prevent a recession. The small-cap index tumbled 7.39 points, or 1.09%, to 673.18, its second consecutive decline. The Dow Jones Industrial Average (INDU) lost 59.91 points, or 0.49%, to 12,099.30.
On a year-to-date basis, the Russell 2000 is down 12.12%, while the Dow has declined 8.79% and the S&P 500 is missing 9.75%.
The U.S. economy is in a recession and policymakers will not be able to do much about it. It appears that was the dominating sentiment on Wall Street as the major U.S. indices posted a second day of losses despite news of a stimulus package designed to invigorate the economy.
But stocks small and large actually began trading in the green following news that General Electric Co. (NYSE: GE) reported a rise in fourth-quarter profit, matching analysts’ expectations.
Also contributing good news was Armonk, N.Y.-based International Business Machines Corp. (NYSE: IBM), which reported fourth-quarter earnings and issued a 2008 guidance above projections.
However, the bullish sentiment did not last. Stocks lost steam ahead of President Bush’s speech to discuss an economic stimulus package and stayed below the flat line after details were made public.
“There is a risk of a downturn,” President Bush said today. “I have concluded that additional action is needed.”
“This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1 percent of GDP.”
That translates to about $145 billion in temporary tax relief. The White House wants to give one-time income tax rebates to taxpayers and eliminate the 10% income tax bracket for one year. Incentives to encourage business investment are also part of the stimulus package.
Democrats generally agree, but want the aid to be more targeted toward the poor and unemployed. There has been talk of increasing funding for food stamps and extending unemployment benefits. House Speaker Nancy Pelosi said that she wants Congress to vote on a stimulus package within one month.
Bush also echoed U.S. Federal Reserve chairman Ben Bernanke’s words on Thursday that fiscal policy must be immediate and short-term if it is to yield desirable results.
In other economic news, the Reuters/University of Michigan consumer sentiment index rose to a level of 80.5 in January from December’s 75.5. That came as a surprise to economists, who were expecting the measure to post a small decline. The index tracks consumers’ willingness to spend money.
Meanwhile, the Conference Board announced that its composite index of leading indicators fell a greater-than-expected 0.2% in December. Economists were forecasting a decline of 0.4% following a drop of 0.4% in November.
The index is used to gauge the direction of the U.S. economy, so its decline underscored fears of a sharp slowdown in growth.
Stock markets will be closed on Monday due to the Martin Luther King Jr. holiday.
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:
• Industrial Distribution Group, Inc. (IDGR), up 24% to $11.43.
• LaBranche & Co. Inc. (LAB), up 14% to $5.08 on news it swung to a fourth-quarter profit.
• PC Mall, Inc. (MALL), up 14% to $8.41.
Biggest percentage losers:
• ZymoGenetics, Inc. (ZGEN), down 17% to $10.89 on news of an analyst downgrade.
• Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA), down 15% to $12.50.
• The9 Ltd. (NCTY), down 13% to $18.89 on news its CFO has left the company.
Volume leaders:
• Ambac Financial Group, Inc. (ABK) 25,424,300 shares traded on news of an analyst downgrade.
• ZymoGenetics, Inc. (ZGEN) 5,652,300 shares traded.
• Pacific Sunwear of California, Inc. (PSUN) 4,987,600 shares traded.
The day saw 228 small-cap stocks set 52-week lows, while three small caps established a 52-week high.
