Small caps fall on rate cut

Alex Alexandrov | Dec 11, 2007 4:46pm EST | Comment

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The Russell 2000 (NYSE: IWM) and the other major U.S. indices dropped on news that the Fed lowered its target interest rate 0.25%. The small-cap index let go 24.93 points, or 3.15%, to 766.27. The Dow Jones Industrial Average (INDU) lost 294.26 points, or 2.14%, to 13,432.77.

On a year-to-date basis, the Russell 2000 is down 2.69%, while the Dow has advanced 7.68% and the S&P 500 has added 4.31%.

Stocks sank today as investors were apparently disappointed after the U.S. Federal Reserve decided to lower its target for the federal funds rate 0.25% to 4.25%.

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,” the Federal Open Market Committee said at about 2:15 p.m. ET, in a statement accompanying the decision. “Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.”

Wall Street was expecting the reduction, with some voices calling on the central bank to act more boldly to prevent the possibility of the U.S. economy falling into recession due to declining house prices and fallout from the meltdown in the subprime mortgage sector.

Small-cap stocks, which opened on a bullish note and were holding on to modest gains, reacted to the news by going on a steep descent.

The Fed, which has now voted for a cut during each of its most recent three meetings, promised to “act as needed” to keep the economy humming along and inflation in check.

The federal funds rate is the rate at which commercial banks make overnight loans to each other.

In addition, the Fed announced it’s lowering the discount rate, the rate it charges for direct loans to banks, 0.25% to 4.75%. That move is intended to encourage commercial banks to borrow more readily from the Fed, thus loosening the grip of the credit squeeze that took hold as the number of bad loans increased over the past months.

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:

• Genesis Microchip Inc. (GNSS), up 57% to $8.49 on news it is being purchased by STMicroelectronics NV (STM) for about $336 million.
• Cost Plus, Inc. (CPWM), up 17% to $5.54.
• FuelCell Energy, Inc. (FCEL), up 16% to $11.85 on news of a narrower fourth-quarter loss.

Biggest percentage losers:

• NCI Building Systems, Inc. (NCS), down 21% to $28.12 on news of a decline in fiscal fourth-quarter profit.
• Triad Guaranty Inc. (TGIC), down 16% to $8.80.
• Cardica Inc. (CRDC), down 15% to $9.16 following news on Tuesday of a partial exercise of the over-allotment option granted to the underwriters of its public offering.

Volume leaders:

• Genesis Microchip Inc. (GNSS) 14,870,000 shares traded.
• Hoku Scientific, Inc. (HOKU) 7,720,800 shares traded on news the company’s director sold 45,000 shares of common stock under a prearranged trading plan.
• FuelCell Energy, Inc. (FCEL) 7,516,700 shares traded on news of an analyst downgrade.

The day saw 64 small-cap stocks set 52-week lows, while eight small caps established 52-week highs.