The benchmark for small cap stocks — the Russell 2000 — turned negative for the year

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The index fell into the red for the year, in stark comparison to the large-cap focused S&P 500.

index — turned negative for the year on Monday, a an indicator of broader weakness occurring in the economy that's being masked by a few large cap tech equities.

The Russell 2000's comparative weakness relative to the broad market indexes underscores Wall Street's concerns that the 2023 market rally has been too narrow. By contrast, the Russell 2000 is often perceived as a better insight into the state of the broader U.S. economy thanks to its focus on smaller businesses whose fate depends more on macroeconomic conditions.

Compared to large-cap companies, small caps can also be more sensitive to the higher rate environment. Lending is also often more difficult for small cap companies versus larger cap names, which are can negotiate lower lending rates. The 10-year Treasury yield is near 15-year highs and was surging on Monday.

 

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