Small caps plunge on Bernanke

The Russell 2000 (NYSE: IWM) posted the steepest decline as U.S. indices fell on news that U.S. Federal Reserve chairman Ben Bernanke called economic growth “sluggish.” The small-cap index lost 16.61 points, or 2.30%, to 705.32. The Dow Jones Industrial Average (INDU) declined 175.26 points, or 1.40%, to 12,376.98.

On a year-to-date basis, the Russell 2000 has let go 7.93%, while the Dow is missing 6.69% and the S&P 500 has fallen 8.14%.

“My baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year,” Bernanke told the Senate Banking Committee today. “The outlook for the economy has worsened in recent months, and the downside risks to growth have increased.”

The bears took complete control of trading as soon as the Fed chief began his congressional testimony at 10 a.m. ET and small-cap stocks began a virtually uninterrupted slide down.

Bernanke hinted that rate cuts are possible in the future and pointed out he is not predicting a recession, but investors didn’t take notice.

In economic news, the U.S. Commerce Department reported that the country’s trade deficit fell by a greater-than-expected 6.9% to $58.76 billion in December from $63.12 billion in November.

However, the U.S. Labor Department reported that for the week ended Feb. 9, the four-week moving average for new jobless claims increased 12,000 to its highest level since October 2005.

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