Large-cap stocks have shown resilience amid the volatility caused by increasing Treasury yields, while small-cap stocks have struggled significantly. The Russell 2000 index has dropped over 5% in the past month, with a stark 16% underperformance compared to the Nasdaq-100, as noted by BTIG's Jonathan Krinsky.
He pointed out that the relative strength index for the Russell 2000 has fallen to 12.77, a level not seen since 1985, indicating potential oversold conditions. Historically, similar low readings occurred in July 2007, August 2011, and March 2020, but in those instances, the ratio continued to decline in the following weeks.
Small-cap companies are particularly vulnerable to rising interest rates due to their reliance on borrowing for growth, making higher rates a significant concern. In contrast, the Nasdaq-100 has gained over 5% recently as investors seek safety in technology and AI-related stocks.
Krinsky noted that if Treasury yields show signs of decreasing, it could provide a much-needed lift for small-cap stocks. Barclays has identified several small-cap stocks, including Ultra Clean Holdings, Penguin Solutions, and PTC Therapeutics, that could outperform if the sector rebounds