Rising bond yields drive small-cap correction, Homrich & Berg says
IWM•Homrich & Berg linked the Russell 2000’s correction of more than 10% to rapidly rising bond yields. It said profitable small-cap stocks fell 6% since mid-August, compared with a 15.2% drop for unprofitable companies.
1. Yields and small caps
In an October 22 analysis, Homrich & Berg linked the Russell 2000’s correction of more than 10% to rapidly rising bond yields and said stabilizing yields could support a small-cap recovery. Since mid-August, profitable small-cap stocks fell 6%, while unprofitable companies declined 15.2%.
2. Valuations and growth
Small-cap forward price-to-sales valuations were 1.5 standard deviations below their average relative to the S&P 500 since 2001. Expected Russell 2000 revenue growth averaged 7.2%, compared with a long-term average of 3.8% since 2013. Utilities, industrials and real estate had the cheapest valuations among predominantly profitable sectors, though utilities and real estate remained particularly rate-sensitive.
