Tag - Apa

Small-cap stocks stormed out of the gate with a flourish this morning, as buyers were enamored with yet another rally in overseas markets and happy that a sobering GDP report in the United States wasn’t even worse. At 9:51 a.m. ET, the Russell 2000 (NYSE:IWM) was up 16.79, or 3.42% at 507.67.

The GDP report this morning came in at minus 0.3%, which marked the steepest contraction in seven years and is consistent with recession-style growth readings. Despite that gloomy picture of the economy, it wasn’t as bad as feared, with the forecast pointing for a dip of 0.5% in economic activity. While GDP was on center stage this morning, the weekly claims figures also came out and were slightly above the forecast, coming in at 479,000 versus expectations for 475,000.

“Economic activity contracted mildly in Q3 with large gains in net exports, inventory investment, and government spending being more than offset by significant weakness in consumer spending, residential investment, and business investment,” Steven Wood, chief economist with Insight Economics, said in an email. “Economic activity was also dampened in September by Hurricanes Gustav and Ike and by the strike at Boeing. However, the full effect of the credit crunch has yet to be felt. While the economy slipped in Q3 it will fall much more sharply in Q4. Our early estimate for Q4 is a decline of 3.5%,” Wood said.

Consumer spending tumbled 3.1% in the third quarter, marking the first decline in 17 years, and the economy has been struggling even more since then, which is a scary proposition heading into the holiday buying season when the U.S. economy is driven heavily by consumer spending.

One has to wonder if some of the strength today also was tied to correcting back some of the late slide from Wednesday’s close, when a story about General Electric’s CEO talking about maintaining profits even if revenues fall 10% to 15% in 2009 appeared to be taken out of context and sparked a panic program trading sell-off in the Dow that also sliced away gains in small caps. There was talk of . . .