Small-Cap Rebound has its Critics

U.S. small-cap stocks and exchange traded funds, such as the iShares Core S&P Small-Cap ETF (NYSEArca:IJR) and the iShares Russell 2000 ETF (NYSEArca:IWM), have been seen as equity market laggards this year. But give IWM some credit, the Russell 2000 Index, one of the most widely followed small-cap benchmarks, recently touched a record high.

Still, some market observers are leery of further upside for smaller stocks. IWM is the biggest ETF tracking the widely followed Russell 2000 Index. Following Election Day, investors flocked to IWM, IJR and rival small-cap ETFs as markets priced in President Donald Trump’s “America First” mantra that would help domestically-oriented companies led the next leg in economic growth.

“The small-cap Russell 2000 just touched an all-time high, but some strategists are forecasting downside for the index in the face of a weakening U.S. Dollar,” reports CNBC. “The Russell 2000, which in Monday trading rose to an all-time high and posted its fifth straight session of gains, is still underperforming the large-cap S&P 500 and the Nasdaq 100, pointed out Rich Ross, technical analyst with Evercore ISI.”

Small-caps are also focused on the domestic economy and have less direct exposure to global geopolitical uncertainty and currency risks, as opposed to large-cap companies that have an international footprint, which may be affected by overseas risks and a strengthening U.S. dollar.

Related: Small Cap ETFs Experience Major Shift in 2017

Although the Russell 2000 hit a record Monday, it “didn’t quite break out decisively. Examining a chart of the Russell 2000 going back to the U.S. election in November, when the stocks surged, Ross pointed out that the index appeared to signal upside out of a trading range formed over the last eight months or so, but has “stalled” at this point,” reports CNBC.