Tuesday, November 10, 2009

Balloon Country

clipped from www.thebigmoney.com

A look at the Russell 2000, one index that does focus on smaller companies, shows that the little guys haven’t shared in the kind of recovery their larger brethren are experiencing.

What’s holding this balloon aloft? Some attribute the rapid rise to investor euphoria at the realization that this recession hasn’t spiraled into a full-blown depression. The Federal Reserve’s continued stance of aggressively low interest rates gets partial credit.

Low rates also play a role in that many of the stocks that have led the recent rebound are financial stocks, which benefit directly from being able to borrow money at bargain-basement rates. Just four stocks—Bank of America (BAC), Citigroup (C), Fannie Mae (FNM), and Freddie Mac (FRE), all of which rely on the Fed’s largesse to an outsized degree—are responsible for up to 20 percent of all trades.