Related: Russell Index ETFs’ Reconstitutions Reveal After Effects of Post-Election Rally
Additionally, periods of rising rates also coincide with expanding economies, which often benefit smaller companies. However, the dollar is sagging this year and the Federal Reserve could be forced to hold off on more rate hikes, scenarios that are pressuring small-caps.
“We’re seeing a divergence in 2017 earnings growth estimates. While large-cap estimates have turned higher, small-cap stock earnings estimates continue to head south. If we see a summer stock market swoon, small caps may not be able to rely on earnings growth as a life raft—all at a time when valuations are in the upper 80th percentile based on the last 22 years of data,” adds SSgA.
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