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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.

Copyright The Financial Times Limited 2017. All rights reserved.
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