Small-cap stocks took a hit on Tuesday as the small cap-focused Russell 2000 dropped more than 1% in the session. This decline contrasted with the broad S&P 500, which only slipped 0.2%. The drop in small-cap stocks raised concerns among investors, especially as the benchmark 10-year Treasury yield slid 7 basis points to 4.3%.
According to David Rosenberg, founder of Rosenberg Research, the muted moves in the market should be a cause for concern. He highlighted that the stock market’s lackluster response to the pullback in Treasury yields and the anticipation of a rate cut in September signals that investors are worried about the economic slowdown and its impact on earnings.
Meanwhile, State Street Global Advisors noted that active ETFs and bank loan funds are gaining popularity among investors. Bond ETFs saw significant inflows, with government bonds and risk-on credit being popular choices. Active ETFs have seen over $108 billion in inflows this year, accounting for 33% of all net inflows in the ETF market.
On the other hand, Bank of America Securities reported that clients were net sellers of U.S. equities last week, with tech stocks taking the biggest hit. This marked the fourth-largest outflow for equities since 2008. Institutional and hedge fund clients were net sellers, while retail clients were net buyers, with a preference for small-cap stocks.
Overall, the market remains uncertain as investors navigate through the volatility in small-cap stocks, changing Treasury yields, and shifting investor sentiment. The coming days will be crucial in determining the direction of the market as economic indicators and geopolitical events continue to influence investor decisions.
