Small caps rise on jobs data
The Russell 2000 (NYSE: IWM) bounced around but eventually posted a modest gain following news of strong U.S. job growth in October. The small-cap index added 2.60 points, or 0.33%, to 797.78. The Dow Jones Industrial Average (INDU) gained 27.23 points, or 0.20%, to 13,595.10.
On a year-to-date basis, the Russell 2000 has increased 1.32%, while the Dow has added 8.98% and the S&P 500 has gained 6.57%.
Labor markets are tight and job growth is stronger than expected, the U.S. Labor Department reported this morning. Non-farm payrolls increased 166,000 in October, more than double the projected rise of 80,000. That’s a sign that the U.S. economy will most likely avoid recession. Payrolls increased a downwardly adjusted increase of 96,000 in September.
The unemployment rate stayed at 4.7%.
“The October employment report showed unexpected strength in the labor market, but largely on account of services,” said Arun Raha, vice president of Economic Research and Consulting for the North American operations of reinsurance company Swiss Re, in an email. “However, the overall economy remains tentative given the weakness in the housing market and high energy prices.”
The jobs report also showed that average hourly earnings increased $0.03, or 0.2%, to $17.58 during October. That’s 3.8% above the level a year ago, suggesting that the tight labor market is not pushing up inflation.
Stocks opened with solid gains, but the bullish mood was short-lived as investors turned their attention to an article in The Wall Street Journal that claimed that Merrill Lynch & Co. Inc. (NYSE: MER) has made deals with hedge funds to postpone when it records losses due to bets made on securities backed by subprime mortgages. The New York-based financial services giant may have to write down $10 billion in losses, according to the article.
The major U.S. indices quickly descended into negative territory but managed to rebound midway through the session. Trading was volatile for the rest of the day, with the Russell rising and falling but eventually climbing into the red with less than half an hour left.
In other economic news, the U.S. Census Bureau reported that orders for manufactured goods increased 0.2% in September, defying expectations of a 0.5% drop. Factory orders fell 3.3% in August. That appears to contradict a report on Thursday by the Institute for Supply Management, a private research group, which said that manufacturing growth slowed in September.
“Manufacturing is still growing, but slower than a few months back,” said Arun Raha. “The weak dollar has been good for manufacturing, as has strong growth overseas.”
Here are the day’s biggest percentage gainers and losers, along with top volume leaders, among companies with a market cap between $100 million and $750 million:
Biggest percentage gainers:
• RadiSys Corp. (RSYS), up 27% to $17.32 on news that third-quarter profit beat expectations.
• PDF Solutions Inc. (PDFS), up 21% to $9.08 following news after the close on Wednesday of an increase in third-quarter profit.
• GB&T Bancshares Inc. (GBTB), up 21% to $10.63 on news it is being acquired by SunTrust Banks, Inc. (STI).
Biggest percentage losers:
• Glu Mobile Inc. (GLUU), down 33% to $6.98 on news of a lower-than-expected fourth-quarter guidance.
• Delta Apparel Inc. (DLA), down 27% to $12.01 on news of a fiscal first-quarter loss.
• OPNET Technologies Inc. (OPNT), down 24% to $9.20 on news of a decline in fiscal second-quarter earnings.
Volume leaders:
• McMoRan Exploration Co. (MMR) 9,527,300 shares traded on news it intends to sell $400 million of senior notes to the public.
• Security Capital Assurance Ltd. (SCA) 4,876,600 shares traded.
• Smith & Wesson Holding Corp. (SWHC) 4,704,000 shares traded.
The day saw 145 small-cap stocks set 52-week lows, while 16 small caps established 52-week highs.
