Small caps flying on low inflation
The Russell 2000 (NYSE:IWM) is posting strong gains on news that March inflation came in below expectations.
At 11:35 a.m. ET, the small-cap index was up 15.51 points, or 2.24%, to 707.57. The Dow Jones Industrial Average had advanced 181.49 points, or 1.47%, to 12,543.96.
Small-cap stocks opened in the green and have been heading higher on news before the start of trading that consumer prices rose 0.3% in March, according to the U.S. Labor Department. Economists were expecting to see an increase of 0.4% after staying flat in February.
Core prices, which exclude the costs of food and energy, added 0.2%, as expected. The numbers indicate that the U.S. Federal Reserve can continue lowering its target interest rate without fearing a rise in inflation. The Fed kicks off a two-day meeting on April 29.
Bullish investors are apparently disregarding news of a report from the U.S. Census Bureau before the opening that housing starts fell 11.9% in March to a seasonally adjusted annual rate of 947,000. That’s below the 1.02 million projected by economists.
Building permits, a sign of future construction, also fell more than expected, a sign that the slump in the housing sector may not yet have bottomed out.
Despite the bearish news, shares of small-cap homebuilders have generally reacted positively. Bensalem, Pa.-based Orleans Homebuilders, Inc. (AMEX:OHB) is flat, but Meritage Homes Corp. (NYSE:MTH), which builds single-family homes in the southern and western United States, has added 8%.
Elsewhere, shares of residential land development and homebuilding company California Coastal Communities, Inc. (Nasdaq:CALC) have gained 2%.
