NEW YORK - Small company stocks were a bright spot in a slow and choppy start to the week for Wall Street.
The Russell 2000, an index of small-company stocks, climbed above 1,000 points for the first time and ended higher Monday, even as the Dow Jones industrial average, the Standard & Poor’s 500 index and the Nasdaq composite index all edged lower.
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.
The gains for the smaller companies are encouraging for the broader stock market because they show that investors are becoming more comfortable about the economy and investing in riskier assets,said Rob Lutts, chief investment officer at Cabot Money Management.
Small-company stocks are considered riskier than the stocks of well-established, large companies such as IBM or Coca-Cola.
That’s because small companies are often relatively young and tend to have less diversified businesses than larger ones, making them more susceptible to swings in demand from their customers. They also have fewer buyers and sellers, which can make the stocks harder to offload if prices start to fall.
“Having smaller stocks hit new highs means that the rally is broad,” Lutts said. “It gives us a little more confidence that it’s a good, sustainable rally that can hold together for a while.”
The Russell 2000 ended the day 1.70 points, or 0.2 percent, higher at 997.98. The index climbed as high as 1001.50 at midday. The index is 17.5 percent higher for the year, a better performance than better-known market barometers such as the Dow and S&P.
Major indexes fluctuated between small gains and losses for most of Monday. On Friday, they ended at record levels after four straight weeks of gains.
The Dow closed down 19.12 points, or 0.1 percent, at 15,335.28, paring its gain for the year to 17 percent. The S&P 500 index fell 1.18 points, or 0.1 percent, to 1,666.29. Its advance for the year now stands at 16.8 percent. The Nasdaq composite index fell 2.53 points, or 0.1 percent, to 3,496.43 points.
Three stocks rose for every one that fell on the New York Stock Exchange. Consolidated volume was light at 3.2 billion shares.
Investors are focusing on the Federal Reserve this week and looking for clues about what it plans to do next with its economic stimulus program. On Wednesday, Fed 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 yield on the 10-year Treasury note has been below 2 percent almost continually since April 12. That’s less than many large companies pay in dividends.
Policymakers 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.”
Business, Pages 26 on 05/21/2013