Small and mid-capitalization stocks—those with a market value less than roughly $5 billion—have performed badly over the past year. The S&P Small Cap 600 and the S&P Mid Cap 400 indexes have returned a negative 5% and 1% respectively, compared with a 6% gain for the S&P 500. Something similar has happened in Europe.
Now market sentiment is being depressed by the U.S.-China trade fight, which smaller companies offer some hedge against. Almost 80% of revenue made by companies in the S&P Small Cap 600 comes from the U.S., compared with roughly 60% for the S&P 500. Traders work on the floor at the New York Stock Exchange. Photo: brendan mcdermid/Reuters This may explain the bout of small-cap underperformance as corporate sales have stalled and wages have risen this year. A record share of members of the National Federation of Independent Businesses now cite labor costs as their single biggest problem. Earnings expectations for companies in the S&P Small Cap 600 have dropped, according to FactSet.
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