Small caps fall as Bernanke speaks
The Russell 2000 (NYSE: IWM) and the other major U.S. indices have taken a hit following news that U.S. Federal Reserve chairman Ben Bernanke thinks the economy is slowing. At 2:47 p.m. ET, the small-cap index had dropped 18.09 points, or 2.51%, to 703.84. The Dow Jones Industrial Average (INDU) had declined 184.20 points, or 1.47%, to 12,368.04.
“The outlook for the economy has worsened in recent months, and the downside risks to growth have increased,” Fed chairman Ben Bernanke told the Senate Banking Committee this morning.
“The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seems likely to weigh on consumer spending in the near term,” he said.
Consumption is about 70% of U.S. gross domestic product.
However, Bernanke pointed out he is not predicting a recession and expects economic growth to pick up later in the year, thanks to rising exports and the recently approved stimulus package.
Investors took the Fed chief’s words as a bearish sign. The Russell 2000 index, which was already languishing in the red, started sliding down soon after Bernanke began his remarks at 10 a.m. ET.
Worries about slow economic growth are apparently outweighing news that the Fed stands ready to make future cuts to its target interest rates.
The federal funds rate, the rate at which commercial banks make overnight loans to each other, currently stands at 3% after being lowered a cumulative 1.25% in January.
Small-cap stocks are posting steeped declines than their bigger brothers, and NightHawk Radiology Holdings, Inc. (Nasdaq: NHWK) is one of the leading losers.
The provider radiology services had its wings clipped after it announced a fiscal 2008 guidance below Wall Street’s projections.
Shares of FreightCar America, Inc. (Nasdaq: RAIL) are virtually motionless on news that an investment group has raised its stake in the Chicago-based maker of railcars.
Similarly, American Public Education, Inc. (Nasdaq: APEI), which provides online postsecondary education to military personnel, has not seen its shares react to news that the company will offer 3.74 million shares at a price of $35.50.
