Small caps rise as Fed drops rate
The Russell 2000 (NYSE: IWM) posted solid gains today, propelled by news of unexpectedly strong economic growth and a drop in the federal funds rate. The small-cap index added 11.87 points, or 1.45%, to 828.02. The Dow Jones Industrial Average (INDU) gained 137.54 points, or 1%, to 13,930.01.
On a year-to-date basis, the Russell 2000 has increased 5.16%, while the Dow has added 11.67% and the S&P 500 has gained 9.37%.
The U.S. Federal Reserve decided to lower the federal funds rate, the rate at which commercial banks make overnight loans to each other, to 4.50% from 4.75% in an effort to keep the economy growing.
The central bank lowered the federal funds rate to 4.5% and the discount rate to 5% in an effort to stimulate economic activity and keep the country from dipping into a recession. The move will make it cheaper for consumers and businesses to borrow money.
However, Fed policymakers signaled that Wednesday's cut may be all that is needed to deal with the economy's troubles.
“Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time,” the Federal Open Market Committee said in statement released at about 2:15 p.m. ET.
Stocks, which declined sharply minutes before the decision was announced, raced ahead to their highest levels during the session.
The bulls were in control of trading before the Fed decision, as investors reacted to news of surprisingly strong third-quarter economic growth.
The U.S. Commerce Department said before the opening that gross domestic product rose at a seasonally adjusted annual rate of 3.9%, better than the forecasted increase of 3.2%. That’s a sign that the economy is dealing well with the ongoing slump in the housing sector.
In other economic news, a report from business outsourcing solutions provider Automatic Data Processing, Inc. (NYSE: ADP) estimated that private employers added 106,000 jobs in October, above the average for the previous three months and a sign that the labor market remains tight.
Here are the day’s biggest percentage gainers and losers among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• First Consulting Group, Inc. (FCGI), up 27% to $12.69 on news it’s being purchased by Computer Sciences Corp. (CSC).
• Pericom Semiconductor Corp. (PSEM), up 27% to $14.94 on news of a strong fiscal first quarter.
• Polypore International Inc. (PPO), up 25% to $17.16 on news of a rise in third-quarter profit.
Biggest percentage losers:
• FARO Technologies Inc. (FARO), down 24% to $28.76 on news of a third-quarter loss.
• Monaco Coach Corp. (MNC), down 22% to $11.60 on news of a disappointing fourth-quarter guidance.
• Buffalo Wild Wings, Inc. (BWLD), down 21% to $30.66 after reporting on Tuesday that third-quarter earnings missed expectations.
