|Russ Koesterich, CFA – Global Allocation Team – BlackRock
Small Caps Looking for a Catalyst
The rally in small-cap stocks has stalled recently. Koesterich thinks that a declining appetite for risk and stretched valuations are to blame for the slowdown in small-caps. High-yield credit spreads have been widening indicating a lack of demand for risky assets. On the valuation side, the Russell 2000 trades around 48x trailing earnings which is particularly pricey compared to other market caps. Small caps will look more favorable if Washington makes progress on tax reform and fiscal stimulus.