Small caps tread in the green ahead of Fed decision
Small-caps are continuing their upward assent midday, ahead of the Federal Reserve’s decision and after this morning’s GDP number was in positive territory.
At 1:14 p.m. ET, the Russell 2000 (NYSE:IWM) was up 5.01, or 0.70%, at 723.94, while the Dow had gained 117.4, or 0.91%, to 12,949.34.
The Federal Reserve’s Federal Open Market Committee two-day meeting concludes at 2:15 p.m. today in which the Fed is widely expected to trim the fed funds rate by 25 basis points. This would be the central bank’s seventh consecutive cut in the key interest rate since September when the Fed first began battling the credit tempest. Investors will pay close attention to the central bank’s commentary to see if the Fed will pause its monetary policy-loosening campaign to fend off inflation.
Much of today’s trading has been driven by the better-than-expected GDP number and corporate earnings.
This morning it was reported that the U.S. economy grew at a slothful 0.6%, just dodging negative growth — an “official” recession signal. GDP came in slightly better than the 0.5% economists had forecasted. While official definition of a recession definition is two consecutive quarters of negative GDP growth, the United States has experienced two quarters of extremely sluggish growth and the U.S. economy is clearly struggling as consumers grapple with tumbling housing values, rising energy and food costs and a soft labor market.
“Everyone has been finding holes in the positive GDP even before it came out and today's number showed much better consumer spending than what would think,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “However, this data didn't include much of the March numbers. We know March and April consumer confidence numbers point to a contraction in consumer spending somewhere around near -2%. Although no recession has shown up yet, the fears remain.”
In other economic news, the Chicago Purchasing Manager’s Survey, which came out at 9:45 a.m. ET, was slightly above expectations at 48.3 and appeared to have very little impact on equity market trading.
Also out this morning, ADP’s national employment report showed an increase in private sector jobs of 10,000 in April. The Employment Cost Index came in at 0.7%, which was slightly off the forecast and appeared to have little impact on trading.
Although investors continue to wait for the FOMC decision, quarterly earnings are continuing to drive trading action. Today in large caps, General Motors Corp. (NYSE:GM) reported a smaller-than-expected loss, which buoyed the automaker’s share price about 13% midday. Proctor & Gamble (NYSE:PG) was up 3% after solid earnings. Citibank (NYSE:C) also made news today after the banking giant said it will raise $4.5 billion by selling stock (up from $3 billion). Shares lost 3% midday.
Among small-cap issues, RadiSys Corp. (Nasdaq:RSYS) jumped about 21% midday on earnings while Advanta Corp. (Nasdaq:ADVNB), one of the nation’s largest credit card issuers, reported better-than-forecasted first-quarter earnings and leapt 19%. Sucampo Pharmaceuticals (Nasdaq:SCMP) gapped higher and was up 17% on FDA approval for a drug to treat constipation.
On the downside, LandAmerica Financial Group Inc. (NYSE:LFG) sunk 19% midday after the title insurance underwriter reported a wider-than-anticipated first-quarter loss after Tuesday’s close and slashed 325 jobs. Hutchinson Technology Inc. (Nasdaq:HTCH) also skidded 18% midday after reporting a wider fiscal second-quarter loss and being downgraded.
