Small Companies Make Big Gains as U.S. Stocks Climb

stocks, markets, wall street
(Reuters//Andrew Kelly/File)

Smaller U.S. company stocks are jumping Wednesday after a report showed business investment climbed in August. Investors are also reviewing tax cuts proposed by President Donald Trump and congressional Republicans. Technology companies are also continuing their recent rebound, and banks are rising along with bond yields, but utilities and other big-dividend stocks are tumbling.

KEEPING SCORE: The Standard & Poor’s 500 index added 7 points, or 0.3 percent, to 2,504 as of 2 p.m. Eastern time. The Dow Jones industrial average rose 27 points, or 0.1 percent, to 22,312. The Nasdaq composite leaped 68 points, or 1.1 percent, to 6,448. The Russell 2000 index, which is made up of smaller-company stocks, continued to set records as it gained 29 points, or 2 percent, to 1,486. It has jumped 9.5 percent since mid-August.

BUSINESS INVESTMENT: The Labor Department said a gauge of business investment rose in August for the second month in a row. Investors hope that means U.S. manufacturing is getting stronger as the global economy continues to improve. Smaller financial, industrial and technology companies climbed.

“We’ve been waiting for that,” said Kate Warne, an investment strategist for Edward Jones, of the recent improvement. “Business spending has been relatively weak,” with spending by consumers keeping the economy afloat.

TAX PLANS: President Donald Trump and congressional Republicans proposed a tax plan that cuts tax rates for individuals and corporations, reduces the number of personal tax brackets, and nearly doubles the standard deduction used by most Americans. They propose to cut the top corporate tax rate to 25 percent from its current 35 percent.

With months of negotiations likely ahead and many key details missing, it’s not clear what kind of plan might ultimately pass. But Warne said a corporate cut would help smaller, domestically-focused companies more than large ones.

“A corporate tax cut tends to be better news for smaller companies because they don’t have as many ways to reduce their tax rate,” said Warne.

RATE FOCUS: Investors bet that interest rates will keep rising. The yield on the 2-year Treasury note rose to 1.47 percent from 1.45 percent. The yield on the 10-year note climbed to 2.31 percent from 2.24 percent. That helped banks, as higher interest rates mean they can charge more to lend money. Bank of America picked up 74 cents, or 3 percent, to $25.55; and Citigroup rose $1.94, or 2.7 percent, to $72.88.

Meanwhile companies that pay big dividends took steep losses. Kimco Realty, a real estate investment trust that owns outdoor shopping centers, fell 82 cents, or 4.1 percent, to $19.34. Household products maker Clorox gave up $3.02, or 2.3 percent, to $128.28. Rising bond yields made government bonds a more appealing investment to investors seeking income.

LACES UNTIED: Shoe and athletic gear maker Nike said sales in the U.S. remained weak in its first fiscal quarter, and steep discounts continued to affect its business. While its earnings and revenue were better than analysts expected, analysts chalked much of that up to lower taxes, stock repurchases and spending cuts.

Nike lost $1.82, or 3.4 percent, to $51.88; and rival Under Armour gave up 22 cents, or 1.3 percent, to $16.32. Sporting goods retailers also slipped.

TWITTER TEST: Twitter climbed after the company began testing a 280-character limit for tweets. That’s double the current limit, which has existed for the social media company’s entire history. The stock gained 40 cents, or 2.4 percent, to $16.99.

Other technology companies also climbed. Chipmaker Micron Technology had a better quarter than investors expected, and its stock rose $2.74, or 8 percent, to $36.92. Facebook climbed $3.01, or 1.8 percent, to $167.22; and Google’s parent company Alphabet picked up $13.11, or 1.4 percent, to $950.54.

POWERING DOWN: Utility company Scana dropped after state police in South Carolina said they are looking into “potential criminality” by the company after a nuclear plant construction project was shut down after some $10 billion had already been spent. Scana said it will cooperate fully with the inquiry. Its stock sank $4.44, or 8 percent, to a two-year low of $51.14.

Scana’s South Carolina Electric & Gas unit and partner Santee Cooper canceled the project in July after contractor Westinghouse filed for bankruptcy.

LOSING ITS LUSTER: Gold fell to its lowest in a month. The metal’s price declined $13.90, or 1.1 percent, to $1,287.80 an ounce. Two weeks ago, gold was at a 12-month high, but it’s fallen sharply since then. Silver lost 6 cents to $16.83 an ounce. Copper rose 1 cent to $2.93 a pound.

CURRENCIES: The dollar got stronger. It rose to 112.73 yen from 112.17 yen. The euro fell to $1.1765 from $1.1798.

OIL: Benchmark U.S. crude lost 2 cents to $51.86 a barrel in the New York; while Brent crude, the standard for international oil prices, fell 61 cents, or 1.1 percent, to $57.31 a barrel in London.

OVERSEAS: The FTSE 100 index in Britain rose 0.4 percent while Germany’s DAX rose 0.4 percent. The CAC 40 in France added 0.3 percent. Japan’s Nikkei 225 fell 0.3 percent, and South Korea’s Kospi dipped less than 0.1 percent. Hong Kong’s Hang Seng index rose 0.5 percent.