Small-cap stocks have been leading the market over the past month, with the iShares Russell 2000 Index ETF outperforming the SPDR S&P 500 ETF by 4.49% and the PowerShares QQQ Trust ETF by 6.61%. Many analysts attribute this strength to corporate tax reform proposals, since smaller companies tend to pay more taxes than larger multinational companies on the S&P 500 index.
There are a few problem with the small-cap story. Earnings growth is expected to be weak, and small caps are trading at higher-than-average multiples, according to Jefferies analysts interviewed by CNBC. The market is expected to get a more detailed look into corporate tax reform moving into October, but deteriorating fundamentals (at least in the near term) could take a toll. Investors could therefore see a pullback in small-cap stocks. (See also: Russell Breakout Lifts Small Caps Into Leadership.)
Small-cap stocks have led the market over the past month, but technical indicators suggest that they’re very overbought. …read more
Read more here: Could Small-Cap Rally Be Coming to a Close?
Category: IWM, SPY, QQQ