The Russell 2000 (RUT) index of small-cap stocks is on the verge of entering a bear market, defined as a decline of 20% or more from recent highs.
On March 13, the index that is comprised mostly of stocks with market capitalizations of around $10 billion or less was down 19% from a 52-week high of 2,449.86 reached last November after U.S. President Donald Trump was re-elected. The index rallied 3% on March 14 and is now down 16% from its most recent peak.
Analysts say the small-cap index has been battered more than other U.S. indices in recent weeks and that it likely won’t take much to push it into bear market territory. Because the Russell 2000 is comprised of smaller companies, it is more susceptible to the economic downturns and market turmoil.
On Edge
Notable small-cap stocks that are part of the Russell 2000 include Comfort Systems USA (FIX), Sprouts Farmers Market (SFM), Beyond Meat (BYND), and Abercrombie & Fitch (ANF). These smaller companies have thinner profit margins and quickly tumble in a market downturn. The decline in the Russell 2000 is nearly double the falloff in the benchmark S&P 500 since it hit an all-time high in February.
Analysts also highlight that the Russell 2000 is more focused on the U.S. domestically and has less overseas exposure. However, international stocks and markets are currently outperforming the U.S. There are also signs of dwindling sentiment. The National Federation of Independent Business’ monthly survey of small-business recently showed that optimism dropped for a second consecutive month.
Is the iShares Russell 2000 ETF a Buy?
The iShares Russell 2000 ETF (IWM) has a consensus Moderate Buy rating among 1,942 Wall Street analysts. That rating is based on 1,281 Buy, 605 Hold, and 56 Sell recommendations issued in the last three months. The average IWM price target of $282.33 implies 39.15% upside from current levels.
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