Bond liquidation wrecks small caps. Here's how bad some traders see it getting
While the S&P 500 powers through rising bond yields and higher crude oil prices, one section of the U.S. stock market is falling behind.
TL;DR
- The Russell 2000 index for small caps has fallen behind the S&P 500 and Nasdaq-100 in September after earlier outperformance.
- Rising interest rates and falling bond prices are identified as the primary reasons for the decline in small-cap stocks.
- Small caps show a stronger negative correlation with Treasury yields than large caps, indicating sensitivity to rate hikes.
- Options trading activity, particularly in the iShares Russell 2000 ETF (IWM), suggests traders anticipate further declines.
- Despite current weakness, some analysts believe small caps have strong underlying fundamentals and solid forward earnings estimates.