Small-cap ETFs were holding up better than their large-cap peers in Tuesday’s sell-off but that hasn’t been the case the past month. The recent underperformance of small-cap ETFs such as iShares Russell 2000 (NYSEArca: IWM) has some worrying the rally has grown long in the tooth.
IWM was down 3.9% for the month ended Oct. 22, more than double the 1.7% loss for SPDR S&P 500 (NYSEArca: SPY), according to Morningstar data.
Small-caps tend to lead the market in risk-on rallies, so their recent underperformance is a warning sign for the bulls.
The small-caps have been providing downside leadership since the mid-September high, says Investors Intelligence technical analyst Tarquin Coe.