Small caps rise again
The Russell 2000 (NYSE: IWM) gained ground for the second day in a row as investors digested the latest financial news. The small-cap index advanced 2.07 points, or 0.27%, to 756.13. The Dow Jones Industrial Average (INDU) fell 25.20 points, or 0.19%, to 13,207.27.
On a year-to-date basis, the Russell 2000 is down 3.97%, while the Dow is up 5.87% and the S&P 500 has climbed 2.57%.
Small-cap stocks went on a rollercoaster ride today but eventually came out on top as investors were unsure what to make of the latest financial news.
The day began with news that Morgan Stanley (NYSE: MS) swung to a fourth-quarter loss due to $9.4 billion in mortgage-related write-downs. The New York-based company responded by saying that it will sell as much as 9.9% of itself to a Chinese sovereign fund for a cash infusion of $5 billion.
The move is similar to the one made by a number of financial heavyweights that posted losses on investments in securities that contain subprime home loans and then turned to foreign investors for a cash infusion to boost capital.
The difficulties stem from the slump in the U.S. housing sector, which began in the second half of 2006 when home prices started to fall. That led to a wave of foreclosures and delinquencies that hit borrowers with subprime loans particularly hard and damaged the financial institutions that had purchased securities backed by those same loans.
As a global credit squeeze took hold, the U.S. Federal Reserve responded by lowering the federal funds rate, the rate at which commercial banks make overnight loans to each other, and creating a Term Auction Facility (TAF) program to auction term funds to depository institutions against collateral that can be used to secure loans.
The first of those auctions was on Dec. 17, and today the Fed announced that it gave $20 billion at an interest rate of 4.65%. The auction attracted 93 bidders that asked for a total of $61.55 billion, a sign that banks are hungry for money to improve balance sheets and boost liquidity.
On a year-to-date basis, the Russell 2000 is down 3.97%, while the Dow is up 5.87% and the S&P 500 has climbed 2.57%.
Small-cap stocks went on a rollercoaster ride today but eventually came out on top as investors were unsure what to make of the latest financial news.
The day began with news that Morgan Stanley (NYSE: MS) swung to a fourth-quarter loss due to $9.4 billion in mortgage-related write-downs. The New York-based company responded by saying that it will sell as much as 9.9% of itself to a Chinese sovereign fund for a cash infusion of $5 billion.
The move is similar to the one made by a number of financial heavyweights that posted losses on investments in securities that contain subprime home loans and then turned to foreign investors for a cash infusion to boost capital.
The difficulties stem from the slump in the U.S. housing sector, which began in the second half of 2006 when home prices started to fall. That led to a wave of foreclosures and delinquencies that hit borrowers with subprime loans particularly hard and damaged the financial institutions that had purchased securities backed by those same loans.
As a global credit squeeze took hold, the U.S. Federal Reserve responded by lowering the federal funds rate, the rate at which commercial banks make overnight loans to each other, and creating a Term Auction Facility (TAF) program to auction term funds to depository institutions against collateral that can be used to secure loans.
The first of those auctions was on Dec. 17, and today the Fed announced that it gave $20 billion at an interest rate of 4.65%. The auction attracted 93 bidders that asked for a total of $61.55 billion, a sign that banks are hungry for money to improve balance sheets and boost liquidity.
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