Monday, October 6, 2014

Rough Times for Small Caps

While large-cap stocks continue to have a solid if unspectacular year, small caps officially entered correction territory last week. What that means is that the Russell 2000 index - the leading benchmark for small-cap stocks - has lost 10 percent of its value since peaking last March.

Of course, we expect small-cap stocks to be riskier than large caps. According to research from Birinyi Associates, the Russell 2000 is 4.5 times more volatile than the S&P 500. There have been nine corrections in the Russell 2000 since the market bottomed out in March 2009. So a correction in that asset class is almost to be expected.

What should we expect from small caps now? Birinyi's research suggests that the average small-cap correction ends up resulting in a 14.8 percent drop in value. Small caps may have a but further to fall.

No comments:

Post a Comment