Small firms do well in uncertain market

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 United States, which is recovering, and less exposed to recession-plagued Europe than the large international companies that make up the Dow and the S&P 500.

The gains for smaller companies are encouraging for the broader 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 those of companies like IBM or Coca-Cola because they tend to be relatively young and to have less diversified businesses, making them more susceptible to swings in demand. There also are fewer buyers and sellers for them, which can make the stocks harder to off-load 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 higher, or 0.2 percent, at 997.98, having climbed as high as 1001.50 at midday. The index is 17.5 percent higher for the year, a better performance than the Dow and the S&P 500.

Major indexes fluctuated between small gains and losses for most of Monday after closing Friday at record levels following four straight weeks of gains.

The Dow closed down 19.12 points, or 0.1 percent, at 15,335.28. The S&P 500 index fell 1.18 points, or 0.1 percent, to 1,666.29. The Nasdaq composite index fell 2.53 points, or 0.1 percent, to 3,496.43 points.

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.