Tiny gain for Russell 2000
The Russell 2000 (NYSE: IWM) barely managed to rise while the Dow slipped on a day marked by credit concerns. The small-cap index added 0.93 points, or 0.12%, to 788.38, its fourth consecutive positive close. The Dow Jones Industrial Average (INDU) fell 30.49 points, or 0.23%, to 13,090.86.
With little economic news, credit concerns took center stage today.
Stocks began the day just south of the flat line after U.S. Treasury Secretary Henry Paulson said credit problems that appeared following the meltdown in the subprime mortgage market could slow economic growth.
Paulson also expressed confidence that the United States will safely get through the current rough patch and that the overall economy remains healthy.
Adding to the credit worries was McLean, Va.-based Capital One Financial Corp. (NYSE: COF), which announced that it is closing its wholesale mortgage business due to the decreased profitability of repackaging home loans and selling them in secondary markets.
Overseas, China’s central bank said that it is raising interest rates for the fourth time this year starting Wednesday, its latest effort to cool the country’s breathtaking economic growth.
Good news came in the form of earnings reports.
Staples Inc. (Nasdaq: SPLS) reported that its second-quarter profit rose 11%, while Target Corp. (NYSE: TGT) reported that second-quarter profit rose 13%. Both retailers met Wall Street’s expectations.
The Russell 2000 index stumbled out of the gate but climbed into positive territory within minutes, falling again an hour later, whereas the Dow could not move firmly into the green until about 11:30 a.m. ET.
Bullish sentiment appeared late in the morning following news that the U.S. Federal Reserve is willing to act in order to stabilize financial markets and limit the fallout from the turmoil of the subprime sector, according to Connecticut Senator, and Senate Banking Committee Chairman, Christopher Dodd, who met today with Fed chief Ben Bernanke.
Stocks immediately appreciated, with small-caps holding on to their gains until the close.
Dodd said that he did not ask for a cut in interest rates.
Nevertheless, speculation has been mounting that the central bank will lower the federal funds rate, currently at 5.25%, during or before its regularly scheduled September 18 meeting.
However, Jeffrey Lacker, who heads the Federal Reserve Bank of Richmond, does not believe that market volatility requires a lowering of interest rates.
“Interest rate policy needs to be guided by the outlook for real spending and inflation,” he said in a speech in Charlotte, N.C. Lacker explained that rates should be cut only if financial turbulence leads to a change in growth or inflation.
