Small caps retreat
The Russell 2000 (NYSE: IWM) and the Dow Jones Industrial Average (INDU) fell, weighed down by news of disappointing earnings, downcast economic data and concerns that there might be no interest rate cut. The small-cap index lost 5.57 points, or 0.68%, to 816.15. The Dow fell 77.79 points, or 0.56%, to 13,792.47.
On a year-to-date basis, the Russell 2000 has increased 3.65%, while the Dow has added 10.56% and the S&P 500 has gained 8.08%.
Stocks began in negative territory after an article in The Wall Street Journal claimed that the U.S. Federal Reserve, which began its two-day meeting this morning, will likely either cut the federal funds rate 0.25% or leave it unchanged. Investors were looking for a drop of up to 0.50%, but today the futures markets were expecting a decrease of 0.25%.
The federal funds rate, the rate at which commercial banks make overnight loans to each other, currently stands at 4.75%, after the Fed voted on Sept. 18 to lower it from 5.25%.
Also helping the bears was news that United States Steel Corp. (NYSE: X) suffered a 35% drop in third-quarter net income due to costs associated with an acquisition.
The bulls were already down, and the economic news that came out shortly after the opening sent them packing.
The Conference Board reported that U.S. consumer confidence fell for the third month in a row in October. The index of consumer confidence fell to 95.6, its lowest level on two months, from 99.5 in September.
“Consumer Confidence posted its third monthly decline and continues to hover at two-year lows,” said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. Franco added that the decline could be a precursor to a slowdown in job growth over the next few months.
The index measures American’s future willingness to spend money. With consumption comprising about 70% of gross domestic product, a decline would spell trouble for the U.S. economy.
