The Russell 2000, the benchmark index for small-cap stocks in the U.S., has turned negative for the year, a sign of broad-based weakness within equity markets.
The small-cap index is now down 0.2% on the year. It is also 12.5% below its 52-week high. By comparison, the large-cap-focused S&P 500 index is up 11% this year, and the technology heavy Nasdaq Composite index has gained 26% since January.
Analysts say the decline in small capitalization stocks indicates broad weakness in the market that’s being masked by a few large-cap technology stocks such as Nvidia (NVDA) and Meta Platforms (META).
The Russell 2000 is often perceived as a bellwether for the state of the U.S. economy due to its focus on smaller businesses that are dependant on macroeconomic conditions.
Small cap stocks are also more sensitive to higher interest rates and decisions by the U.S. Federal Reserve, America’s central bank.
Analysts say that declining interest rates in the coming year should help the small-cap sector rebound from its current doldrums.
While they remain up on the year, all three major U.S. indices, the S&P 500, Nasdaq, and Dow Jones Industrial Average, ended the recent third quarter in the red as stocks have slumped across the board since the start of August.
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