“Small-Cap Shocker: How Bonds, Secular Bear Markets, and You are Connected”

For the past several months, investors have been monitoring the secular bear market and its impact on small-cap stocks. With the market on a continued downward spiral due to the coronavirus pandemic, there has been a huge shift in focus from growth to value and large caps to small caps. In an effort to seek return and income, investors have been turning to bonds, leading to a further decrease in small-cap stock prices.

The recent bear market has had a negative impact on the broader market, with small-cap stocks feeling the brunt of it. Small-cap stocks are trading at prices far below their previous high when compared to large-cap stocks. A comparison of the Russell 2000 small-cap index to the S&P 500 large-cap index shows that the Russell 2000 has significantly underperformed since mid-February. This indicates that small-cap stocks have experienced a much larger decline than large-cap stocks, leading to a decline in investor confidence in those sectors.

Additionally, investors are turning more to bond investments as a source of yield and return, leading to a further decrease in small-cap stocks. As investors focus more on bonds, they are withdrawing their capital from small-cap stocks, further driving down prices. As the bond market continues to grow, the demand for bonds increases, causing the stock market to take a backseat as a result.

With the prospect of investing in small-cap stocks becoming more uncertain, it is important for investors to remain cautious and diversify their portfolios. They can do so by investing in diverse sectors, such as technology, healthcare, and consumer discretionary, so they don’t rely on small-cap stocks.

Overall, the secular bear market and its impact on small-cap stocks has been detrimental to overall market performance. Investors looking for return and income are likely to pursue bonds, causing a further decrease in small-cap stock prices. This further underscores the importance of diversifying one’s portfolio and investing in various sectors to minimize the potential losses from volatile markets.