Small-cap stocks stumble

After outpacing the rest of the market in the first half of 2021, Wall Street’s smallest companies are suddenly its biggest laggards.

The Russell 2000 index, a benchmark for small company stocks, fell

5.1% last week, its biggest weekly pullback since last

October.

The small-cap index had been just 2.3% below it’s all-time high earlier this month. As of Friday, it was up

9.5% for the year, well below the S&P 500’s 15.2% gain.

The reason: investors are losing confidence about the economic recovery amid rising inflation, expectations that corporate earnings have peaked, and other concerns. Profit margins at smaller companies are more vulnerable to rising costs and a slowing economy, which makes larger companies more attractive.

“The large-cap index resiliency has been about a handful of stocks holding up the indexes,” says Willie Delwiche, investment strategist at All Star Charts. “In other words, small-caps indexes have weakened because they don’t have exposure to the Apples and Amazons of the world.”