{"id":89916,"date":"2024-02-24T21:34:33","date_gmt":"2024-02-25T02:34:33","guid":{"rendered":"https:\/\/ifintechworld.com\/?p=89916"},"modified":"2024-02-24T21:34:36","modified_gmt":"2024-02-25T02:34:36","slug":"small-cap-stocks-havent-been-this-volatile-in-nearly-a-year-what-it-means-for-the-long-suffering-segment","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=89916","title":{"rendered":"Small-cap stocks haven\u2019t been this volatile in nearly a year. What it means for the long-suffering segment."},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0003012513\" role=\"document\">\n<p>U.S. small-cap stocks looked ready to take off this year after a mostly lackluster 2023 \u2014 but volatility greeted investors over the past week, as uncertainty on when the Federal Reserve will cut interest rates crept back on Wall Street after a mixed batch of January inflation data.\u00a0<\/p>\n<p>The small-cap benchmark Russell 2000 index<br \/>\n        RUT<br \/>\n       \u2014 which measures the performance of 2,000 small and midsized companies included in the Russell 3000<br \/>\n        RUA<br \/>\n       index \u2014 on Friday booked its seventh straight session with a move of at least 1% in either direction, its longest such run since a 10-session streak that ended in March 2023, according to Dow Jones Market Data. <\/p>\n<div class=\"paywall\">\n<p>For the week, the Russell 2000 advanced 1.1%, outperforming the tech-heavy Nasdaq Composite<br \/>\n        COMP<span>,<\/span><br \/>\n       which fell 1.3%, by the widest margin since the week ending Dec. 15 of last year. Additionally, the S&amp;P 500<br \/>\n        SPX<br \/>\n       fell 0.4% for the week while the Dow Jones Industrial Average<br \/>\n        DJIA<br \/>\n       was off 0.1%, with all three major large-cap indexes snapping five-week winning streaks, according to Dow Jones Market Data.<\/p>\n<p>\u201cSmall caps are almost directly a \u2018Fed story\u2019 or a \u2018rates story,\u2019\u201d said Anna Rathbun, chief investment officer at CBIZ Investment Advisory Services. <strong>\u201c<\/strong>You see more volatility in small caps because of their dependency on rates,\u201d she told MarketWatch in a phone interview on Thursday.<\/p>\n<p>Investors usually see small-cap stocks getting punished when there is market sentiment that interest rates will stay higher for longer, and recovering on signals that the central bank\u2019s monetary-tightening cycle might be over, Rathbun said.<\/p>\n<p>On Tuesday, a steep selloff across U.S. stock and government-debt markets after a hotter-than-expected January inflation report dragged the Russell 2000 down nearly 4% \u2014 its worst day since June 2022 \u2014 as investors confronted the bitter possibility that interest rates will stay higher for months longer than they had hoped.\u00a0<\/p>\n<p>However, investors breathed a sigh of relief over the following trading days, after dovish comments from Chicago Fed President Austan Goolsbee and a weak retail-sales report revived hopes for a first rate cut from the Fed in the coming months. The Russell 2000 ended around 2.5% higher on Thursday, notching its best daily percentage gain since December, according to FactSet data.\u00a0<\/p>\n<p><strong>See: <\/strong>Beaten-down small-cap stocks are roaring back. Why they could soar in 2024.<\/p>\n<p>Earlier this year, some investors bet on a significant resurgence for long-suffering small-cap stocks, with hopes that the sector\u2019s brief outperformance in December could have legs in the new year as interest rates come down and the U.S. economy proceeds toward a soft landing.\u00a0<\/p>\n<p>Yet the Russell 2000 has risen only 0.3% so far this year, compared with a 4.9% advance for the S&amp;P 500 and a 5.1% gain for the Nasdaq over the same period, according to FactSet data.\u00a0<\/p>\n<p>David Lefkowitz, head of equities for the Americas at UBS Global Wealth Management, said small-cap stocks are close to playing catch-up to their large-cap peers after being left in the dust in 2023, as periods of negative correlation between interest rates and small caps tend to be short lived.\u00a0<\/p>\n<p>\u201cWe don\u2019t see why this time would be any different, but even if this correlation remains intact, our fixed-income team\u2019s outlook for the 10-year Treasury yield to fall to 3.5% by the end of the year should be supportive for small-cap outperformance in the months ahead,\u201d Lefkowitz and his team said in a client note from last week.<\/p>\n<p>The yield on the 10-year Treasury bond<br \/>\n        BX:TMUBMUSD10Y<br \/>\n       settled at 4.294% on Friday afternoon, after advancing 10.8 basis points this week, according to Dow Jones Market Data.<\/p>\n<p>Meanwhile, the chart below shows that it\u2019s more common for small caps to outperform when rates are rising and economic growth remains solid. But Lefkowitz and his team admitted that the recent rise in rates hasn\u2019t led to small-cap outperformance because pickup in earnings growth has not yet \u201cconvincingly come through.\u201d<\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>Indeed, a resilient U.S. economy is typically required to support small-cap companies\u2019 outperformance, but the volatility in the Russell 2000 means investors are not convinced that the economy is on the path to achieving a soft landing right now, CBIZ\u2019s Rathbun said.<\/p>\n<p>\u201cWhat are the small caps pricing in that we may not be thinking about? We keep talking about soft landing, no landing \u2014 but we\u2019re still flying midair, and we\u2019re nowhere near the runway right now,\u201d she said. <\/p>\n<p><strong>See:<\/strong> Stock market bounces back from inflation-inspired dive. Here\u2019s the message for investors.<\/p>\n<p>That\u2019s why the \u201cextra volatility\u201d in small-cap stocks over the past week should be better characterized as an \u201copportunistic rotation\u201d into a lagging sector as the megacap-tech-led rally has broadened out, instead of a \u201cfundamental move\u201d into small caps amid looser credit conditions or a strong U.S. economy, said Steve Sosnick, chief strategist at Interactive Brokers.\u00a0<\/p>\n<p>\u201c[Small-cap stocks] move because the money is flowing into them as the momentum carries the stocks along the way \u2014 but the downside is many stocks are unprofitable, which means they either need a strong economy or relatively favorable rates in order to borrow money and stay afloat until they can be profitable,\u201d Sosnick told MarketWatch in a phone interview on Thursday.\u00a0<\/p>\n<p>Sosnick added that the rotation may only be profitable for those who \u201csuccessfully catch the waves,\u201d as unless there are signs of either a strengthening economy or easing credit conditions, the Russell 2000 is still likely to experience headwinds that its larger peers will not.<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/small-cap-stocks-havent-been-this-volatile-in-nearly-a-year-what-it-means-for-the-long-suffering-sector-d79a2567?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>U.S. small-cap stocks looked ready to take off this year after a mostly lackluster 2023 \u2014 but volatility greeted investors over the past week, as uncertainty on when the Federal Reserve will cut interest rates crept back on Wall Street after a mixed batch of January inflation data.\u00a0 The small-cap benchmark Russell 2000 index RUT [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":89917,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-89916","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Small-cap stocks haven\u2019t been this volatile in nearly a year. 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