Investors reportedly pulled $3.5 billion from the biggest exchange-traded fund that tracks the Russell 2000 Index last week, spooked by the steepest selloff in the domestically focused stocks since before Donald Trump’s surprise election win.
The biggest outflow in 10 years comes less than a month after small caps roared to an all-time high on speculation Trump administration policies would supercharge growth in the world’s largest economy, Bloomberg reported.
However, some experts are warning a tumble may loom.
“There’s some nervousness out there and people are staying in the most liquid stocks,” said Andrew Brenner, head of international fixed income for National Alliance Capital Markets. “I think we’re getting ready for a much more significant correction.”
The small-cap index “tends to react to nerves more than the S&P 500 Index -- it’s less liquid and more directly impacted by the U.S. economy and the performance of the dollar, which sits at the lowest level since November compared with a basket of major peers. While the S&P 500 hovers just 0.2 percent below its record, the Russell 2000 is on track for its worst four-week stretch in seven months,” Bloomberg reported.
Brenner says investors should heed technical market signals that are flashing warnings, especially until there are clearer signs the administration’s proposals have the Congressional support needed to become law.
“The market is getting ready to sell off. Not just yet, but it is getting near,” he said. “Facebook, Amazon, Google, Microsoft, Apple, those are the ones that have bounced back strongly. It’s left the Russell in the dust.”
However, other market experts disagree.
“June will be a pivotal month for small-capitalization stocks, since the annual Russell index rebalancing occurs in late June. Furthermore, at the end of each quarter, equally-weighted ETFs are rebalanced, which translates to even more buying pressure for small capitalization stocks,” Louis Navellier wrote for Seeking Alpha.
“The amount of money pouring into equally-weighted ETFs in turn causes small capitalization stocks to “melt up” on persistent order imbalances. Finally, June is also the end of the second quarter, so institutional investors will be doing a lot of window dressing in the last week of June. That’s a 1-2-3 “punch” supporting small-cap stocks in June, so I expect that the “melt up” we’ve seen recently in small-cap stocks will continue in June.” Navellier wrote for Seeking Alpha.
(Newsmax wires services contributed to this report).
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