Friday, August 23, 2019

Trouble in the Small Caps

Despite an overall solid year for the markets, the small-cap asset class remains a problem child. The Russell 2000 index, which tracks companies with a median market capitalization of $784 million, remains 13 percent below the record high it set last August.

What's more, companies in the index appear mired in an earnings recession. The small-cap sector's profits fell by double digits in the first quarter and look set to fall by 9 percent in the second, according to an analysis Bank of America.

On top of that, debt levels reached an all-time high for the Russell 2000 in the first quarter of 2019, according to an analysis by RBC. Some experts say that this rising debt is masking even an worse performance among small-cap companies than shown by the anemic 2019 earnings level.

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