Small company stocks take the limelight

Monday, May 20th, 2013 | Finance News

NEW YORK (AP) — Small companies took the limelight Monday on a slow but choppy start to the week.

The Russell 2000, an index of small-company stocks, rose above 1,000 for the first time. The index is outpacing the Dow Jones industrial average and the Standard & Poor's 500 index this year. Small stocks are doing well because they are more focused on the U.S., which is recovering, and are less exposed to recession-plagued Europe than the large international companies that make up the Dow and the S&P 500 index.

Major indexes were little changed in early afternoon trading Monday. The Russell edged higher, while the Dow, S&P 500 and Nasdaq composite were slightly lower.

Investors will be watching the Federal Reserve this week for clues about what it plans to do next with its economic stimulus program. On Wednesday Federal Reserve Chairman Ben Bernanke will appear before Congress and the central bank will release minutes of its most recent policy meeting.

The Fed is buying $85 billion of bonds every month to keep long-term interest rates low. That has encouraged investors to put money into stocks instead of bonds. The Dow, S&P 500 and Russell are all at record high levels.

Policy makers are unlikely to cut back on stimulus just yet since U.S. economic growth is likely to slow in the second quarter, said Scott Wren, a senior equity strategist at Wells Fargo Advisors. As a consequence, Wren said, stocks are likely to continue to rise.

"At some point, we will see some sort of a pullback, but it doesn't seem like it's going to be right now," said Wren. "In the near term we're probably going to trade a little bit higher."

The Dow Jones industrial average was down 23 points, or 0.2 percent, to 15,331 as of 2:30 p.m. Eastern Daylight Time Monday. The index is 17.1 percent higher for the year.

The Standard & Poor's 500 index fell one point, or 0.1 percent, to 1,676. The Russell gained one point, or 0.1 percent, to 996.84, having risen as high as 1,001.50 at midday.

The S&P 500 has risen 16.9 percent this year, the Russell has risen 17.4 percent.

On Friday, the stock market closed out its fourth straight week of gains. The advance is being underpinned by investors moving back into stocks, reversing years of outflows of funds from equity markets, said Jerry Braakman, chief investment officer at First American Trust.

Investors have invested about net $17 billion dollars into domestic equity mutual funds since the start of the year, according to data from the Investment Company Institute. The inflows come after investors pulled money out of mutual funds every year since the financial crisis in 2007.

"This market rally still has legs, partly because we've seen huge retail inflows back into equities," Braakman said. "It's hard to beat the money flow."

In commodities trading, the price of crude oil rose 69 cents, or 0.7 percent, to $96.71 a barrel.

The price of gold rose for the first day in eight as the dollar fell. The precious metal climbed $19.40, or 1.4 percent, to $1,384. Gold has slumped this month as its attraction as an alternative investment fades as the dollar appreciates.

The U.S. currency is strengthening because investors believe the U.S. economy is in better shape than the Japanese or European economies.

The dollar's rally paused on Monday, though, and the U.S. currency fell against the euro and the yen. The dollar index also dropped, after climbing to its highest level in close to three years Friday.

In U.S. government bond trading, the yield on the 10-year Treasury note rose to 1.97 percent from 1.93 percent.

The Nasdaq composite index fell three points, or 0.1 percent, to 3,496 points.

Among stocks in focus on Monday:

— Actavis rose $2.15, or 1.8 percent, to $127.60 after pharmaceutical company said it's buying Warner Chilcott. The all-stock deal, valued at $8.5 billion, would create the third-biggest specialty pharmaceutical company in the U.S.

— Yahoo edged up 13 cents, or 0.5 percent, to $26.64 after the Internet company said it was buying online blogging forum Tumblr for $1.1 billion.

— Chesapeake Energy rose 77 cents, or $21.04, to $21.05 after the natural gas producer named Anadarko Petroleum executive Robert Douglas Lawler as its new CEO. He takes over as Chesapeake continues selling assets to pare down an enormous debt burden.

—Websense, an internet security firm, surged $5.52, or 29 percent, to $24.75 after the company agreed to be taken private for $906 million by private equity firm Vista Equity Partners.

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