The cubs had a taste of bear market porridge on Monday as small-cap stocks sat 20 per cent below their peak.
The Russell 2000 fell as much as 1.3 per cent on Monday, dragging the small cap-focused index down 20.1 per cent from its August 31 high.
That puts small companies, which are typically regarded as having more exposure to the domestic economy, in worse shape overall than their large-cap counterparts in the S&P 500 and Dow Jones Industrial Average, which are sitting in correction territory.
While the US economy remains in relatively robust shape, concerns remain over the impact successive interest rate increases from the Federal Reserve this year will have. The domestic housing market, for example, has already slowed owing to higher mortgage rates, while in the Fed’s October survey of loan demand, banks indicated demand for commercial, industrial and residential real estate loans had been weak.
US companies have, in general, been hurt this year by rising input costs. Unlike multinationals, small-caps do not have global revenue streams that can sometimes help cushion overall profits.
Performing worst since the end of August have been the Russell 2000’s energy, materials & processing and healthcare sectors, which are all down by 20 per cent or more over that period.
Having posted double-digit gains in both 2016 and 2017, the Russell 2000 is off by about 9 per cent this year, which would be its worst annual drop since 2008. The S&P 500, meanwhile, is down 4.2 per cent in 2018.
The Russell 2000 most recently entered a bear market in January 2016, before bottoming out in March of that year, from a peak in late June 2015.
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