Investor sentiment about small-cap stocks worsens

The small company-focused Russell 2000 is down roughly 10% from its late-2024 high

- Bloomberg

Investor sentiment around small-cap companies is worse than it's been in months. As it turns out, the mood isn't much better inside their corporate boardrooms.

The small company-focused Russell 2000 is down approximately 10% from its late-2024 highs as investors have lost faith in the wagers that President Donald Trump's policies would boost the sector.

Corporate executives are dour as well: An analysis of earnings transcripts by Bank of America Corp. going back to 2004 showed that sentiment on earnings calls of small-cap companies has never been as negative in comparison with their large-cap peers.

"The small-cap trade rallied on hope alone following the election, with a loose narrative that 'pro business' policies would particularly help smaller companies," wrote Cameron Dawson, chief investment officer of Newedge Wealth. "However the harsh reality of higher-for-longer interest rates pressuring balance sheets, plus economic and policy uncertainty restraining earnings, has led to a reversal."

The Russell 2000 was among a slew of so-called Trump trades that surged following the election, as investors bet that higher tariffs on foreign goods would boost demand for products from smaller, U.S.-based companies.