MARKET SNAPSHOT: U.S. Small Caps Lead Broad Stock-market Gains

By Anora Mahmudova and Carla Mozee, MarketWatch

MannKind leaps, Dean Foods slumps

NEW YORK (MarketWatch) -- U.S. stocks advanced Monday, led by a rally in small-cap companies, though continued tensions in Ukraine and the Middle East put a cap on the S&P 500's gains.

The Russell 2000 (RUT) rose 10 points, or 0.9%, to the preliminary 1,141.58. The index of small companies has outperformed the large-cap S&P 500 in the five of the past six sessions, and many analysts see the leadership of small stocks as a sign of improving markets.

The S&P 500 (SPX) rose 5.32 points, or 0.3%, to 1,936.91, Consumer staples and technology stocks lead the gains.

The Dow Jones Industrial Average (DJI) gained as much as 75 points in the morning, but pared gains in the afternoon. The blue-chip index closed 16.05 points, or 0.1%, higher at 16,569.98.

The Nasdaq Composite (RIXF) ended the day up 30.43 points, or 0.7%, at 4,401.33.

Monday's rally is being described as a relief rally after a selloff during the previous two weeks. The near-4% pullback on the S&P 500 began as investors fretted the Fed might raise rates sooner than expected in light of recent economic data that were stronger than expected.

Jay Feuerstein, managing director of alternative strategies at money manager Manning & Napier, says Wall Street is worrying unnecessarily. "The Fed under Janet Yellen wants to see a much stronger labor market improvement before raising rates and will tolerate a rise in inflation to aid the economy," he said.

He said low rates and the improving economy make equities attractive.

"When dividends are yielding higher than 10-year Treasurys, equities will continue to outperform, and we expect a big rally in the fourth quarter," he added.

Among geopolitical worries, the situation in Iraq remained fluid ,with air strikes slowing the advance of the militant group ISIS. But chaos ensued in Bagdad following an appointment of a new prime minister by the president.

Meanwhile, Russia announced it would send a humanitarian convoy into Eastern Ukraine. That could put a temporary stop to gunfights between the Ukrainian forces and rebels in the region.

Individual stocks

Shares of Mannkind (MNKD) rallied 4.6% after the company reached a licensing deal with Sanofi (SNY) to develop and sell inhaled insulin drug Afreeza in the U.S.

Shares of Tesla Motors Inc.(TSLA) rallied 4.6% after an upgrade to buy from Deutsche Bank. The bank also increased its price target on the stock to $310, from $220 a share.

Shares of Dean Foods (DF) slumped 3.9% after the milk and food company reported a wider-than-expected loss and withdrew its full-year outlook.

Kinder Morgan (KMI) jumped 8.8% following plans to consolidate its oil-and-gas pipeline empire into a single company in a $44 billion deal. (Read more about the day's notable movers here: http://www.marketwatch.com/story/priceline-and-dean-foods-are-stocks-to-watch-monday-2014-08-08.)

In other markets, 10-year Treasury yields (10_YEAR) rose. Oil futures (CLU4) posted minor gains, but gold futures (GCZ4) retreated. European stocks rose following last week's losses, and Asian shares advanced, with Japan's Nikkei Average up 2.4%.

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