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Small stocks lack bounce as gains cool

The broader stock market bounced back Wednesday from its worst drubbing of the year. But small-company stocks stayed down.

After being one of the top-performing segments of the stock market after Donald Trump was elected president and aggressively reiterated his “America First” agenda, performance has fizzled for the small-company Russell 2000 stock index. The small-fry gauge soared more than 18% from Election Day to its March 1 record high of 1413.64, outpacing the gains posted by the large-company Standard & Poor’s 500 index, which rallied 12% after the election.

Small U.S. stocks initially got a boost from Trump’s domestic-focused policies, which were viewed as benefiting them more. Their domestic-focused businesses were seen getting a bigger lift from the president’s call to slash corporate taxes, reduce costly regulation and spend big on infrastructure.

But the “Trump Trade” has slowed in recent weeks, as the president’s economic agenda has gotten bogged down in a fight over a new health care law. The pause in the stock rally has hit small shares the most, a sign that investors are pulling back on risk. Since the March 1 peak, the Russell 2000 has given back nearly 5% of its post-election gains, vs. a 2% drop for the S&P 500.

The lagging performance continued Wednesday, with smallcaps ending down 0.1% and the S&P 500 gaining 0.2%.