The latest selloff was inspired by faster-than-forecast inflation reports that pushed back the timing and number of any future interest rate cuts.
This month's rout in smallcap stocks has erased the Russell 2000's sparkling first quarter gain, and the benchmark index for smaller shares could face further trouble ahead so long as interest rates are left unchanged. The Russell slumped 2.9% this week and is down 5.7% in April. Smallcaps had climbed 4.8% in the first quarter in a hopeful sign that the stock market rally might be broadening to include underperformers. They're now down 1.
"While not a large enough sample set to draw conclusions from, we believe the longer the first rate cut gets pushed out vs our economists' June forecast, the lower investors' confidence that cuts will happen — ending the hiking cycle will not likely be enough," she added. Servicing debt Hall specifies that the risk to smallcaps is tied to the effect of higher interest rates on refinancing needs.
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