Small caps trade in narrow range after Fed rate cut

Jennifer Schonberger | Oct 29, 2008 12:08pm EDT | Comment

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Small caps are trading in a narrow range between positive and negative territory following a 50 basis point cut in the fed funds rate. At 2:33 p.m. ET, the Russell 2000 (NYSE:IWM) was up 1.64, or 0.34%, at 484.38.

The Federal Reserve concluded its two day federal open market committee meeting today with a widely expected 50-basis-point cut in the federal funds rate.

The Fed’s cut comes on the heels of a 0.27% rate cut in China. In Europe, the European Central Bank hinted that rate cuts are possible in the near-term. Rate cuts globally would help thaw the still tight credit markets around the world, easing the flow of credit.

Libor slipped for the 13th consecutive trading day, and commercial paper activity picked up dramatically following the Fed’s new program to purchase commercial paper. Evidence that the credit markets are showing signs of marginally loosening boosted the U.S. markets Tuesday and pushed overseas markets higher today.

In economic news, durable goods orders clocked in above expectations, with a gain of 0.8%, compared with the forecast for a drop of 1.1%. However, the favorable surprise couldn’t boost the market, as traders remain cautious on the dreary economic outlook.

Also on the data front, the MBA Mortgage Application Index jumped 16.8%, but remains 30% below year-ago levels and is hovering near 8-year lows as the housing market remains mired in a slump.

Oil prices recoiled off 17-month lows, as some perceive prices have bottomed. Oil traders also hope global rate cuts will spur economies and foster demand. Additionally, inventories rose less than expected last week. A barrel of light sweet crude rose $5.15 to $67 midday, remaining at its highs of the session.

Treasuries remain mixed midday, ahead of the Fed’s decision, with the shortest term T-bills trading lower. Treasuries have largely been a measure for risk appetite, as investors have sought safe havens for their cash. Both the two-year and 10-year are giving back, while the 5-year and 30-year are up.

With the Fed and economic news at the forefront, corporate earnings are taking a backseat. Kraft Foods Inc. (NYSE:KFT) beat the forecast and was edging higher in midday trading. On the flip side, Sony’s (NYSE:SNE) earnings plunged 72% as the consumer electronics company grappled with a strong yen. The Japanese company reports these results after halving its full year earnings forecast on weaker demand last week. General Motors (NYSE:GM) reported an 11% decline due to waning domestic demand.

In broader industry groups, gambling, coal and precious metals were all gaining ground, while REITs, drug retailers and healthcare providers were under pressure.

In small cap headlines, CTS Corp. (NYSE:CTS) has plunged 32% after posting lower third-quarter earnings, while revenues also slipped and fell short of the consensus view. Ultimate Software (Nasdaq:ULTI) has given up 21% after swinging to loss in of $0.09 per share in the third quarter, while the Street was expecting a profit of $0.09 per share. On the upside, Hercules Offshore (Nasdaq:HERO) has jumped 32% after reporting third-quarter results that topped Wall Street estimates.