A fall in American small business stocks is a bad sign; understand

The Russell 2000 index, which has companies like Crocs, BJ’s Wholesale and others with an average market valuation of about $3 billion, is trading more than 10% below its 52-week high. This is likely a market correction.

A microcap stock fund, traded on the iShares exchange (which are even tinier companies than Russell 2000’s), is nearly 15% below its peak.

This is worrisome because most smaller US companies rely more on the US economy (and US consumers) for their revenues and earnings than the giants of the Dow and S&P 500. They are not generating as much revenue and profit in markets around the world. world.

So tough times for smaller stocks may be a more accurate barometer of the US financial landscape and what’s happening with big tech companies like Apple, Microsoft and Google holding company – which have fared much better during the recent market downturn.

“Run the blue ships lightly and there will be a more severe rotation in the roles of the smaller companies,” said Liz Ann Sonders, chief investment strategist at Charles Schwab.

Sonders noted that many of the smaller companies in the S&P 500, in addition to cutting-edge technologies, were subject to major fixes in the past year. It just so happens that blue chips masked the broader market’s broader weakness.

This divergence also caught the attention of other Wall Street strategists.

David Wright, co-founder of Sierra Mutual Funds, noted in a recent report that many more stocks on the NYSE and Nasdaq hit new lows in 52 weeks, rather than highs recently.

“What that means is that only a few big stocks are keeping indices high, while a growing number of stocks are already bearish,” Wright said.

The market slump in smaller stocks is a big reason why the Fear & Greed Index has suddenly plunged into near “extreme fear” territory after posting sky-high levels just a month ago.

The volume of falling stocks is greater than that of rising.

Small businesses may also not be able to pay higher wages to workers as easily as corporate giants. Profit margins (and overall earnings) can be hurt as they try to stay competitive with salaries, bonuses and other compensation.

Action memes come back?

GameStop will report earnings after closing on Wednesday (8). The stock, along with the AMC movie theater chain, has become synonymous with the stock meme revolution that has been boosted on Reddit and other sites.

GameStop shares have risen more than 850% so far in 2021. But stocks have gone through an extremely bumpy ride, to say the least. GameStop is also trading nearly 65% ​​below the historic record set in January.

It’s easy to forget that GameStop is actually a legitimate business and not just a “stonk” that has become a pawn of traders trying to punish the short selling hedge funds that were betting against the company.

For what it’s worth, there are growing hopes that the company’s business is changing with Matt Furlong, the new CEO and former Amazon executive, who joined GameStop earlier this year.

GameStop has also given a bigger boost to e-commerce since Chewy co-founder Ryan Cohen took a large stake in the company and was later named president.

The company is still expected to post a loss in the current quarter. But Wall Street is forecasting profit in the holiday period ending in January and predicts GameStop will make money in the next fiscal year.

Demand for video games at GameStop is expected to be strong. The biggest challenge may be the widely publicized shortage of Microsoft’s Xbox Series X and Sony’s PS5 consoles due to global supply chain issues affecting semiconductors.

(Translated text. Read the original article here)