Small caps power on after GDP reading

Tag : caps

Small caps continue to trade in the green midday, though off theirhighs of the session, after GDP was not as bad as feared. At 12:12p.m. ET, the Russell 2000 (NYSE: IWM ) was up 6.35, or 1.29% at 497.24.
Stocks are higher after a rally on Wednesday fizzled in the lastminutes of trading. Trading kicked off on a positive note thismorning after overseas markets rallied on the Fed rate cut andafter today’s GDP report. GDP, a measure of all products andservices produced in the U.S., slipped into negative territory,clocking in at minus 0.3%. The reading marked the steepestcontraction in seven years and is consistent with recessionreadings. Despite the gloomy economic implications of the report,GDP wasn’t as bad as feared, as economists forecasted a dipof 0.5% in economic activity.
In other economic news, weekly claims figures came out and wereslightly above the forecast, coming in at 479,000 versusexpectations for 475,000.
“Economic activity contracted mildly in Q3 with large gainsin net exports, inventory investment, and government spending beingmore than offset by significant weakness in consumer spending,residential investment, and business investment,” StevenWood, chief economist with Insight Economics, said in an email.“Economic activity was also dampened in September byHurricanes Gustav and Ike and by the strike at Boeing. However, thefull effect of the credit crunch has yet to be felt. While theeconomy slipped in Q3 it will fall much more sharply in Q4. Ourearly estimate for Q4 is a decline of 3.5%.”
Consumer spending tumbled 3.1% in the third quarter, marking thefirst decline in 17 years. This report is yet another piece ofeconomic data that points towards a consumer led recession. Theconsumer is the growth engine of the economy, as it accounts fortwo-thirds of economic growth; and with a soft consumer any hopesfor economic recovery are short winded.