Small caps drop on weak economy

The Russell 2000 (NYSE: IWM) lost more than the other major U.S. indices as news of disappointing economic reports spread recession fears. The small-cap index declined 13.74 points, or 1.94%, to 696.28. The Dow Jones Industrial Average (INDU) fell 142.96 points, or 1.15%, to 12,284.30.

On a year-to-date basis, the Russell 2000 has declined 9.11%, while the Dow is down 7.39% and the S&P 500 has retreated 8.57%.

Small-cap stocks erased early gains and declined sharply as investors focused on news of a weak economy.

The U.S. Labor Department reported that jobless claims for the week ended Feb. 16 fell 9,000 to 349,000 from the preceding week’s upwardly revised total of 358,000.

Economists were expecting a rise to 349,000 from an originally reported 348,000.

However, the more stable four-week measure increased 10,750 to 360,500, the highest average in more than two years.

“The jobless claims number is consistent with a softening labor market,” said Arun Raha, vice president of Economic Research and Consulting for the North American operations of reinsurance company Swiss Re, in an email. “Firms have moved from not hiring to laying off workers.”

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