Small caps have been hit particularly hard by the U.S. summer sell-off, unable to withstand any further declines, with next week being key.
The iShares Russell 2000 (IWM-US) has fallen about 9% from its summer peak in mid-August.tracking large-cap stocks over the same period S&P 500 The index fell less than 7%.
Federal Reserve Chairman Jerome Powell’s comments at the annual Jackson Hole Symposium on Friday contributed to the recent decline in stocks as the Fed appeared willing to endure some economic damage in order to lower inflation. of destruction.
That hits small-cap stocks harder because their earnings are more sensitive to changes in economic demand and they have less access to capital than larger, more established businesses.
The small-cap ETF is now trading at about $183 a share, having dipped below a key area of around $190 and on the verge of danger territory. When the ETF hit that key area in the early summer, there was an influx of buying to support the price, but in recent weeks the ETF has dipped above $190 without an influx of buying, and it now looks more likely that the ETF will continue to fall .
Therefore, the next few trading days become crucial. The ETF’s current price ($183) is almost in line with its 50-day moving average (MA), and a break below the 50-day MA would indicate that market participants lack confidence in the stocks within the ETF.
A break below the 50-day MA could see the ETF slide all the way to the next support at $175, according to strategists at Macro Risk Advisors.
There was also some good news on Friday, as some support appeared to be seen near the 50-day MA. The ETF was largely flat after the August jobs report came in below expectations. Because the weak jobs report means the Fed is likely to slow the pace of rate hikes.
From next week onwards, any rally from Monday to Friday will be quite important, although any rally still won’t make the small-caps look good.