Small-caps stocks continue to crater, especially next to their large-cap peers, as investors shed riskier plays in a confusing global economic landscape.
Right now, small-cap stock performance relative to large-caps is near its worst since the financial crisis.
When small and mid-cap stocks start underperforming large stocks at this magnitude, it usually means investors are worried, so they are huddling in big names that are easy to trade and shedding smaller companies generally considered riskier, especially if they believe there's a recession ahead.This occurred during past soft patches since the financial crisis. Ultimately, this has been resolved with risk appetite increasing and investors going back into smaller stocks.
"Its a little bit of a fallacy because small-cap companies are suppliers to large-cap companies," said DeSanctis. "Small-cap leverage ratios are at record highs, both relative to their own history and extreme relative to large-caps," she added. "Investors are saying we are very late in the economic cycle, you really want to be careful about companies that have leverage. They want cleaner balance sheet stories," said DeSanctis.Large-caps are delivering much better earnings growth than small-caps so far this year.
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