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Stocks are navigating choppy trading Wednesday after the Federal Reserve’s recent meeting meetings showed that officials saw that the economy was deteriorating.

At 2:18 pm ET, the Russell 2000 (NYSE:IWM) is up 5.73, or 1.33%, at 437.43, while the Dow is up 0.23% and the S&P 500 is up 0.59%.

Pulte Homes Inc. announced today that it has agreed to buy rival small-cap Centex Corp. (NYSE:CTX) for $1.3 billion in a stock deal that will create the nation's largest homebuilding company. Centex shares are currently up almost 20%.

Other small caps climbing today include United Western Bancorp (Nasdaq:UWBK), up 42% on news it will sell certain assets of its Sterling unit.

******It doesn’t happen often. Earnings season usually kicks off with either some bullish enthusiasm or bearish pessimism. But Tuesday afternoon, Alcoa (NYSE:AA) gave analysts exactly what they were looking for: nothing more, nothing less.

Alcoa lost money in the first quarter. A lot of it, really. $497 million. A year ago it earned $303 million.

But that loss was, apparently, perfectly priced into the stock. And so . . .

Small-cap stocks pushed lower to start Thursday’s session, as the latest figures on weekly claims showed record large numbers of U.S. citizens are on unemployment insurance. In addition, earnings news and monthly retailer sales figures are sloppy as expected, adding to the bearish tone. At 10:01 a.m. ET, the Russell 2000 (NYSE:IWM) was down 4.93, or 1.10%, at 443.55. Although small caps remain above the January lows, the Dow today slipped to the lowest point since the Nov. 21 bottom was carved out.

The weekly claims report rose to a new cycle high, as a sobering number of Americans were forced to file for unemployment benefits last week. The headline figure on claims came out at 626,000, which was way ahead of the projection of 592,000. That figure marked the highest level on weekly claims since 1982. Even more sobering is that the number of people forced to remain on the unemployment rolls climbed to 4.78 million, which is the largest number on record. Although these figures won’t make it into Friday’s big monthly Labor Department jobs report for January, it’s still a troubling sign.

At the same time that the weekly claims report came out, the latest reading on productivity was released, and the number topped the forecast by quite a bit, with productivity coming in at 3.2%, well above the 1.4% projection. The factory orders report at 10:00 a.m. ET came in at minus 3.9% and included a hefty downward revision to last month’s report.

Coming into today’s action, stock markets in Europe and Asia were seeing a mild retreat, with European shares pulled down by losses for insurance companies and consumer products firms. Swiss Re, the world’s second-largest insurer saw double-digit losses in European trading and Warren Buffett invested about $2.6 billion in the firm. The Bank of England trimmed another 50 basis points off their benchmark interest rate, bringing rates down to 1%, the lowest level in more than 300 years for the bank. Meanwhile, the European Central Bank opted to leave their benchmark . . .

Small-cap stocks pushed higher Wednesday, recapturing a little more than one-third of Tuesday’s massive decline as technology stocks and commodity shares were back in favor with investors and distressed financial issues stabilized. The Russell 2000 (NYSE:IWM) closed up 9.87, or 1.40%, at 717.16 and is now down 6.3% for the year. Meanwhile, the Dow was up 0.34% Wednesday, but still is off 15% for 2008, while the S&P 500 was up 0.61% on the day, but remains down 16% for the year.

One could argue that stocks were oversold after suffering the largest one-day rout of the year Tuesday, and while that likely played a role in the bounce today, there were also favorable stories to help fuel the move. It seemed like a majority of the earnings reports were either a non-event or slightly upbeat, and decent results from Texas Instruments Inc. (NYSE:TXN) appeared to project an immediate positive tone into the tech arena, which had been struggling of late. TXN gained about 1% on the day, and other tech stocks such as Research in Motion Ltd. (Nasdaq:RIMM), the makers of Blackberry, climbed 6%.

Homebuilders, which were absolutely hammered Tuesday, mounted a recovery bounce today, with the ISE Homebuilders Index rising 3%. DR Horton Inc. (NYSE:DHI) was up about 4% and Pulte Homes (NYSE:PHM) was up some 5%.

Energy shares were higher, even though crude oil prices slipped to fresh five-month lows. In fact, several commodity sectors provided a boost to the stock market, with coal, metals, steel, oil exploration, gas utilities and integrated oil and gas stocks among the best performing sectors. Chevron Corp. (NYSE:CVX) rose 3% and was one of the top lifts on large-cap indices and that strength spilled over into small-cap energy names as well. It was interesting to see that even though commodity stocks were a bullish element today for equities, the overall Commodity Research Bureau Index was actually down about 0.7%. Part of that slide in physical markets was likely tied to a strong tone in the U.S. dollar, which crimps demand for commodities priced in dollar terms. The greenback charged to fresh 11-month highs against the . . .

Small-cap stocks remained under pressure into mid-session, anchored down by renewed concerns about the economic picture and by ongoing jitters over the credit crisis. The Russell 2000 (NYSE:IWM) tumbled to session lows, snapping chart support at 734 while moving within striking distance of key support at 726. At 12:35 a.m. ET, the Russell was down 11.71, or 1.58%, at 730.26.

Small caps were noticeably weaker than large-cap index products, with the Dow off about 1.11% and the S&P 500 down 0.92%. Small caps have outperformed all year long and were overbought on momentum readings coming into this week’s action. Looking at dozens of individual small-cap stocks, one theme keeps repeating: stocks that were making new move highs just last week are getting pounded as investors scramble to book profits.

That desire to step aside on equities was ignited Monday when financial shares came under renewed fire from worries about the credit crunch amid reports that several large players still are facing massive debt write-downs. On that same theme today, analysts cautioned that Lehman Brothers Holdings Inc. (NYSE:LEH) could take another $4 billion in mortgage-tied losses this quarter, and LEH stock took a dive approaching 9%.

Fresh economic data on inflation and housing failed to offer any immediate good news to counter the dour investor mood, as the Producer Price Index (PPI) climbed to 27-year highs on a yearly basis. What’s more, the PPI also showed that inflation was creeping into other areas besides gas and food, which makes it harder to discount the data by pointing at recent declines in energy prices.

On the energy front today, crude oil prices were actually sinking, moving back toward $112 a barrel, as energy traders fret about soft demand from slumping economic conditions around the world. In addition, the latest tropical storm to slam through the Gulf of Mexico region veered away from key production areas, which negated the need to build a storm premium into the market. The U.S. dollar softened as the stock market ebbed, with the greenback tumbling 0.6% against the euro and slipping about 0.3% against the yen. Elsewhere on the commodities front, grains prices were . . .

Small-cap stocks are expected to open lower, pressured by inflation jitters stirred by import price data and by ongoing concerns in the financial arena. It’s worth noting that stocks were already in the negative column overnight before this morning’s retail sales and import price reports were released, and they remained in the red when the data failed to generate any kind of upside surprises. The Russell 2000 (NYSE:IWM) was expected to open about 0.5% lower, which would suggest an open near 740.30.

The retail sales report headline figure came in at minus 0.1%, which was in line with the market consensus. The sales figure excluding autos was at plus 0.4%, which was slightly below the forecast for a rise of 0.5%. However, last month’s figure was revised upward to plus 0.3%, after being reported at plus 0.1%. The immediate response in stock market futures was muted, while the dollar was basically flat versus the euro and remained lower against the yen.

The retail sales report was released in tandem with the import price data, which was very strong, and which sparked a slide in Treasury futures. July import prices was up 1.7%, compared with the forecast for a rise of 1.0%, June prices were revised upward and the year-over-year rise in import prices was up a stunning 21.6% to the highest level in 26 years, fueled by soaring petroleum prices. Treasury prices typically recoil from a rise on inflation, which devalues fixed income investments.

Outside of the data, traders are expected to keep a close watch on the financial arena, as worries about debt write-downs took a toll on bank stocks Tuesday. Also, farm machinery maker Deere & Co. (NYSE:DE) reported soft sales and . . .

The Russell 2000 (NYSE: IWM) is leading the bulls’ stampede, up more than 2%, while the Dow (INDU) is on record territory. At 2:20 p.m. ET, the small-cap index had added 19.01 points, or 2.36%%, to 824.46. The Dow Jones Industrial Average had gained 195.82 points, or 1.41%, to 14,091.45, above its close of 14,000.41 on July 19.

The bulls are dominating trading this afternoon as investors speculate that the worst is over for the subprime mortgage sector.

Homebuilders, which have been hit particularly hard by the ongoing slump in the U.S. housing sector, got a breath of fresh air today when Citi Investment Research advised buying shares of Lennar Corp. (NYSE: LEN), D.R. Horton, Inc. (NYSE: DHI), Pulte Homes, Inc. (NYSE: PHM), Centex Corp. (NYSE: CTX) and The Ryland Group, Inc. (NYSE: RYL).

Citi Investment Research, the research arm of financial services giant Citigroup Inc. (NYSE: C), said that shares of the builders may be poised for a rally.

Also seeing its fortunes rise is micro-cap company Tarragon Corp. (Nasdaq: TARR), following news before the opening that Fannie Mae will reinstate $79.6 million in loans to the New York-based homebuilder and real estate developer.