Small caps climb ahead of Fed announcement

Small-cap stocks are rallying in Wednesday midday trading, as oil futures declined sharply after the Energy Department said oil and fuel supplies are larger than expected. Investors are waiting for news from the Federal Reserve’s rate committee, which wraps up a two-day meeting this afternoon. The Fed is widely expected to end the rate cut cycle and talk tough on inflation. At 2:01 p.m. ET, the Russell 2000 (NYSE:IWM) was up 7.88, or 1.11%, at 715.80.

Crude oil prices are sharply lower in afternoon trading. The Energy Department said in its weekly inventory report that crude oil supplies rose, while Wall Street expected a 1.7 million barrel decline. The supply increase gave investors reason to believe that skyrocketing gas prices have lowered demand. Crude is down 3% to $132.73 a barrel in recent trading.

The new home sales report clocked in at minus 2.5% and the inventory of new homes was at 10.9 months, which was a mild rise over the previous report. Although the home sales data was weak, it didn’t deter the stock market, which is already focused on the Fed later today.

“Set the snooze button for 2:15 ET PM today for the FOMC decision and we'll all be tearing apart the text for nuances on what to expect going forward. Market has 50 basis points of tightening priced in for Fed Funds by the end of December,” Andy Busch, global foreign exchange strategist for BMO Capital Markets, said in an email. “The U.S. Treasury's auction of two-year notes Tuesday showed a big surge in demand with the bid to cover ratio at 2.64, up from 2.28 last and an indirect foreign bids of 27.7% that show Treasury market participants believe the Fed tightening . . .

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