US small-cap stocks surrender 2017 advance

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US small-cap stocks were pounded on Tuesday, giving up their year-to-date advance, amid a broad sell-off across Wall Street.

The Russell 2000 index tumbled 2 per cent on Tuesday, a far steeper slide than the large-cap focused S&P 500 index, which declined by 1 per cent.

Tuesday’s sell-off knocked the index slightly into the red for 2017. The move represents a sharp reversal from just a few weeks ago. It closed up by 4.2 per cent on a year-to-date basis on March 1, according to FactSet data.

Small-caps have been major beneficiaries of the so-called Trump trade, surging 13.6 per cent from election day to the end of 2016. However, as expectations that the new administration will be able to swiftly pass a slew of business-friendly initiatives has dimmed, they have begun to come under pressure.

The fall is also significant since small-caps are considered to be something of a proxy for the broader economy since they typically have a higher domestic exposure than their large-cap counterparts.

Valuations for small-caps have also become “extended”, with earnings growth estimates falling, presenting another risk to the asset class, equities strategists at Citigroup said.

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