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.

For access to the full article, you must be a registered member - it's FREE.

Already a member? Please log in below