What to watch

Investors’ angst: Puny gains for small stocks

Wall Street always finds something to worry about. And one of its biggest anxieties recently has been what the puny gains of a closely watched index of smallcompany stocks means for the broader market and future of the

8-year-old bull market.

The weak link in the rally of

2017 has been the Russell 2000 index of small stocks. These stocks, which get most of their sales domestically, had surged after President Trump’s election as investors bet they would “benefit the most from tax cuts and business deregulation,” says Nick Sargen, senior investment strategist at Fort Washington Investment Advisors. But the Trump agenda has stalled, and small firms have benefited less from stronger growth abroad.

Prior to Tuesday’s stock market rebound that pushed the Russell 2000 up 1.1% in 2017, it had dipped into negative territory for the year in the prior two trading days. That caught Wall Street’s attention because the performance was awful compared to the Dow’s year-to-date gain of 10.8%, the large-company Standard & Poor’s 500’s nearly 10% gain and 17% rise for the Nasdaq.

“We need to be mindful of the weakness out of small caps,” said Todd Sohn, analyst at Strategas Research Partners in New York. The poor performance, he says, is a sign less stocks are doing well. It could also be signaling that “risk appetite” has diminished. “It will be important to judge if this weakness leaks into other areas of the market,” Sohn says.