Declining stocks of US companies is a sign of a larger economic downturn

Declining stocks of US companies is a sign of a larger economic downturn

The Russell 2000 Small Cap Index showed that it had lost 9% of its value last year (Reuters)

Washington: Elie Youssef

The growth figures recorded by small businesses in the United States last year triggered warnings that they would signal what would happen in the larger market. The Russell 2000 Small Cap Index showed that it had lost 9% of its value last year, while the Standard & Poor's index of large companies had risen by 6%.
According to the relative wealth index of small and large businesses, he showed earlier this month that he had fallen to a record low of 51.8%, the lowest level since March 2009, plus 60% previously. General
This decline has been perceived as a warning to some investors: shares of small capitalization companies, which generate more income through their domestic activities, generally increase before the market rises more widely … This simply indicates that it is a fear of an economic slowdown, and the reluctance of investors to own the shares of these small businesses.
According to the Russell 2000 Index, small businesses account for 82% of their revenues in the United States, compared to 50% for Standard & Poor's 500 companies, according to Sally Davies, managing director of Goldman Sachs. The Wall Street Journal reported that, due to their concentration on domestic activity, they should have done better.
Small businesses also tend to have lower cash reserves and to borrow, which makes them more interest rate sensitive.
The Russell 2000 Index fell nearly 20% in the fourth quarter of last year, surpbading the Standard & Poor's 500, as investors badumed the Federal Reserve would raise interest rates.
This is reflected in the operations of the following months as the market is now betting on a rate cut later this month. However, as investors continued to fear global growth, small cap stocks continued to fall.
On the other hand, the investors see that it is possible to fill the gap if the Federal Reserve carries out transactions, stabilizes the economic data and gets a truce in the trade war, this could be reflected in positive way on small businesses.
According to some senior investors, some reallocate funds to small businesses, particularly in the industrial and financial sectors.
While the Russell 2000 index is expected to reach 21.6 times over the next 12 months, up from 23.2 times last year, the S & P 500 index has gained 16.8 times, its highest level in 16 years.
Smaller stocks are typically traded at higher valuations as investors see the possibility of an accelerated growth path, while larger companies are more mature and stable.
Many investment funds go to small businesses to avoid major turbulence related to geopolitics and global growth. They believe that investing in these companies would prevent them from drawing the consequences of the trade war with China or the British exit from the EU. Recent figures are worrying, however, as the US economy appears to be slowing more than expected.

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