Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

BofA sees 'continued weakness in small caps near-term', prefers S&P 600 to Russell 2000

Published 03/15/2023, 09:02 PM
Updated 03/15/2023, 09:02 PM
© Reuters.

© Reuters.

By Senad Karaahmetovic 

Bank of America equity and quant strategists see near-term risks for smaller stocks.

Russell 2000 (+0.9 year-to-date) is modestly underperforming the S&P 500 (+2.1% YTD) and BofA strategists warn that the period of underperformance may continue.

"Tighter credit conditions, wider credit spreads and a higher VIX are typically more negative for small vs large caps; bull steepeners have also been the weakest yield curve phase for small vs large," the strategists said in a note.

The global banking crisis is not helping at all, given that the U.S. regional banks consist of 8% of the Russell 2000. This is another factor that is not helping small stocks and Russell 2000.

"Lack of contagion could still support a preference for small>large over a 12mo view for reasons outlined in our prior work/Year Ahead, and the secular case remains intact. But we view tactical caution on small vs large as prudent," they added.

All in all, the strategists urged the bank's clients to stay selective and focused on high-quality stocks and FCF generators.

"For passive investors, we continue to highlight the S&P 600 as higher quality than the Russell 2000, though it has similar regional banks exposure (we prefer large banks/SIFIs to small/ regional banks). The good news: small cap Financials have grown much higher quality vs. historically," they concluded.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.