Small caps rise despite tech sector
The Russell 2000 (NYSE: IWM) is up while the other major U.S. indices are falling on disappointing news from major tech sector players.
At 10:21 a.m. ET, the small-cap index had added 1.65 points, or 0.25%, to 673.22. The Dow Jones Industrial Average (INDU) had lost 46.58 points, or 0.39%, to 11,924.61.
A sell-off is on hand this morning as investors react to news of an unimpressive second-quarter sales guidance from Apple Inc. (Nasdaq: AAPL).
The Cupertino, Calif.-based company said that sales growth will slow to 29% in the second quarter, down from a pace of 35% growth seen in the first quarter. The forecast unleashed fears of a pullback in consumer spending, further contributing to worries of an economic recession.
Consumption is about 70% of U.S. gross domestic product.
Otherwise, Apple reported that its first-quarter profit was $1.58 billion, or $1.76 per share, compared with $1 billion, or $1.14 per share, a year earlier. That’s above Wall Street’s projections.
Contributing to the bearish mood is Motorola Inc. (NYSE: MOT), which forecasted that it will swing to a loss in the current quarter due to a decline in sales of its mobile devices. Analysts were expecting to see a profit.
The Schaumburg, Ill.-based company also said that it expects to lose market share. It currently accounts for about 12% of the mobile-device market.
Investors have been jittery lately as fears of a U.S. recession have mounted. On Tuesday, the U.S. Federal Reserve responded with an emergency cut in its target federal funds rate.
The federal funds rate, the rate at which commercial banks make overnight loans to each other, fell to 3.5% from 4.25%. The move was followed by similar action from the Bank of Canada, which lowered its target for the overnight rate by 0.25% to 4%.
Some observers were expecting other central banks to act in similar fashion, but today European Central Bank President Jean-Claude Trichet made a statement saying his priority is fighting inflation in order to avoid increased volatility.
News that the ECB, which makes monetary policy for the 15 countries in the 27-member European Union that have adopted the euro as their currency, is not considering a rate cut encouraged the bears.
