Small-cap stocks have not been having a particularly good time of it recently, and while we don’t claim to have deep knowledge of the dark arts of technical analysis, a comparison of the Russell 2000 Total Return (TR) Index to the S&P 500 TR from 2005 to 2016 seems to reveal the distinctive features of a classic head-and-shoulders pattern. Somewhat ominously, this pattern has also just broken below the neckline. In this week’s Economics Weekly, we take a deeper look into the current small-cap cycle to find what might be driving the fundamentals of that relative performance today.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.