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Investing.com – The U.S. Small Cap Index is expected to rise 14% over the next year, up from a 9% increase over this period, analysts estimate. writes Business Insider.
However, making more money for the small cap index also comes with a lot of risk, as it all depends on its ability to withstand certain obstacles.
Usually the opposite happens: the S&P 500 outperforms the Russell 2000.
The first hurdle for the Russell 2000 is an interest rate hike, as the index is more vulnerable to monetary tightening, as its credit debt is much more difficult for its companies to service than a large S&P 500 company. a third of Russell 2000 debt is floating rate.
The second hurdle could be economic growth, as compared to the S&P 500, the Russell 2000 is more affected by US economic performance, and even if a recession does not occur, small-cap stocks will struggle to turn a profit in the later stages of the business cycle. , as investors have more confidence in companies with larger balance sheets. At the same time, any further increase in growth is unlikely as long as the Fed fights inflation.
And finally, the third hurdle for the index is the composition of its constituent companies: the index is made up of cyclical stocks, regional bank stocks, real estate and biotech stocks, all of which are very vulnerable to a slowdown in the national economy, a rate hike, and any re-emergence of financial concerns. stability.
— Materials from Business Insider were used in the preparation
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2023-06-29 17:19:00
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