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Posted by on Feb 7, 2018 in Cornerstone Investment Partners, Featured, Small Cap Market Review

Weekly Small Cap Market Review: January 29 – February 2

Weekly Small Cap Market Review: January 29 – February 2

By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)

Congrats to the Eagles. I’m a Giants fan, so frankly I wanted both teams to lose, but it was a really fun game to watch, even if the score seemed more like a college tilt. The real winner is the guy who the Philadelphia Ritz Carlton hires to replace its awning with something that can, in fact, hold up 25 people next year. Before we get into the craziness of last week, time to pay the piper with our prop bets.

  • Pink National Anthem Length: Under. She sang for 1:53, less than 2:00
  • Whether M&Ms, Pringles, or Toyota will have the first advertisement: Toyota, with a nice commercial that starts off like the beginning of an old joke (A priest and a rabbi are driving in a car)
  • Whether Justin Timberlake will cover a Prince song: Yes, he played “I Would Die 4 U”
  • The number of tweets the President will send during the game (0-2 vs. 3+): 1 (and technically it was after the game to congratulate the Eagles)
  • Coin flip: Heads, shrinking Tails’ lead to 27-25.

I attended the TD Ameritrade conference with AdvisorShares last week, and these events are always a great opportunity to speak with a wide range of advisors about their perspectives on the market and how clients are thinking.

The small cap market, as defined by the Russell 2000 Index, was down 4.7% overall during the week. All sectors were negative, but the sectors in the Index with the strongest relative weekly performance were Financials (-1.6%), Utilities (-3.0%), and Industrials (-3.6%). Energy (-9.0%), Materials (-5.8%), and Consumer Discretionary (-4.9%) were the weakest. On a style basis, small caps were in line with large caps, as the Russell 1000 Index was also down 3.8%. Among small caps, growth slightly outperformed value, as the Russell 2000 Growth Index returned approximately 10bp more than the Russell 2000 Value Index.

Around one-fifth of companies in the Russell 2000 have reported so far, with about 2/3 beating Wall Street quarterly estimates on both revenue and EPS. Looking forward, margins are expected to improve, with revenue estimates for 2018 holding flat, but EPS estimates increasing somewhat.

After positive performance year-to-date, market sentiment abruptly turned negative last week. Although there were few key economic data points that have driven the shift, investors have become concerned around risk and the effect of rising yields and inflation on the market. Whether the level of interest rates that affect long-term investor behavior is actually 3, 5, or 7%, investors reacted last week to rising yields and a steepening of the forward curve. Downside protection came at a premium, with the Russell 2000 Volatility Index spiking 20% during the week, and highly risky assets, like bitcoin, falling over 40%. Financials benefited from the steepening curve as it helps provide increased asset/liability spreads for banks, and Utilities held up due to its low-risk position, even as dividends would look relatively worse in a higher-yield environment. Energy was pulled down from weak performance out of US resource owners.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.