Small caps drop on inflation worries
The Russell 2000 (IWM) fell as comments from Fed officials stating that inflation remains a concern erased early gains. The small-cap index fell 9.09 points, or 1.30%, to 692.49, its third consecutive decline. The Dow Jones Industrial Average (INDU) lost 65.03 points, or 0.53%, to 12,200.10.
On a year-to-date basis, the Russell 2000 has decreased 9.60%, while the Dow has let go 8.03% and the S&P 500 is missing 9.66%.
“It will be necessary to continue to monitor inflation developments carefully,” Philadelphia Federal Reserve Bank President Charles Plosser said in a speech to the Birmingham Rotary Club this afternoon. “With inflation creeping up, we have to be particularly alert for rising inflation expectations.”
Similarly, Richmond Federal Reserve Bank President Jeffrey Lacker told an audience at Marshall University’s Lewis College of Business that the risks of a recession have recently increased while inflation has not moderated as some expected, according to news reports.
Higher inflation makes it difficult for the U.S. Federal Reserve to boost the economy with cuts to the target federal funds rate for fear that lower interest rates could drive inflation even higher.
Small-cap stocks immediately deflated upon hearing the news, the Russell 2000 falling into negative territory at about 2 p.m. ET.
The small-cap index began the day on a bullish note following news that worker productivity grew more than expected during the fourth quarter, according to the U.S. Labor Department.
Productivity increased at an annual rate of 1.8% during the final three months of 2007, above the 0.5% rate expected by economists but below the downwardly revised 6% pace during the third quarter.
Increases in productivity allow for an increase in production without a corresponding increase in prices or a jump in the company’s costs.
Unit labor costs, which are a key measure of inflation, rose 1.6% after falling 1.9% in the third quarter. Economists were expecting fourth-quarter unit labor costs to rise 3.8%.
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:
• Multi-Fineline Electronix, Inc. (MFLX), up 37% to $18.15 on news of first-quarter earnings that beat expectations.
• iMergent, Inc. (IIG), up 22% to $12.18 on news of an increase in fiscal second-quarter revenue.
• Monaco Coach Corp. (MNC), up 17% to $10.88 on news that fourth-quarter profit beat expectations.
• Travelzoo Inc. (TZOO), down 32% to $10.79 on news that the company missed fourth-quarter earnings expectations.
• Double-Take Software, Inc. (DBTK), down 27% to $11.21 on news of a weak first-quarter profit forecast.
• CommVault Systems, Inc. (CVLT), down 25% to $14.55 on news that it lowered its earnings forecast for fiscal 2008.
• SiRF Technology Holdings, Inc. (SIRF) 15,343,200 shares traded.
• CommVault Systems, Inc. (CVLT) 4,079,200 shares traded.
• IndyMac Bancorp, Inc. (IMB) 3,788,000 shares traded.
The day saw 47 small-cap stocks set 52-week lows, while six small-caps established a 52-week high.
About the Author
Reporter Alex Alexandrov is based in SmallCapInvestor.com's Washington, D.C. bureau.
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