The iShares Russell 2000 Index Fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the small capitalization sector of the U.S. equity market as represented by the Russell 2000 Index. The index represents the approximately 2,000 smallest companies in the Russell 3000 Index.
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Leading this week's decline are a lot of the same names which led March's "momo" selloff, among them the biotechs (XBI -4.5%) and social media (SOCL -4.4%). Also familiar, small caps (IWM -1.5%) are off more than the other major indexes.
Doing their jobs are the low volatility ETFs like SPLV (SPLV) and USMV (USMV -0.2%), as well as defensive sectors like the utilities (XLU +0.6%).
Raymond James' typically bullish Jeffrey Saut is out with a note calling for the first decent pullback of the year - a 10-12% decline - to commence later this month or early August, and he suggests investors begin raising cash.
"Knowingly overpaying never has made sense to me, which I think people are doing," says small-cap fund manager Eric Cinnamond, notable for being up 14.5% at the midway point in 2009 vs. peers' average loss of 27%, but missing out on the bull market of the last three years thanks to his large cash holdings.
The small cap stocks on his radar are as "expensive as I have ever seen them," he tells the WSJ. "We're just unwilling to overpay with other people's mooney in high-quality, small-cap stocks."
Russell Investments is planning its annual index realignment today, affecting more than $5T in assets. Credit Suisse estimates $42B will trade as a result of the adjustment, resulting in one of the biggest trading days of the year in terms of dollar volume.
Asset managers and investors will have to realign their portfolios to match up with the new shifts in indices such as the Russell 2000 and the Russell 3000.
Due to the expected surge in volume, exchanges are now busy preparing for possible technical issues occurring over the course of the day.
Yesterday, the London Stock Exchange said it will acquire Frank Russell for $2.7B.
London Stock Exchange (LDNXF) has announced that it is buying the asset-management and stock index unit Frank Russell for $2.7B. A large chunk of the funding for the acquisition will be based off a $1.6B rights issue to be issued in September.
The stock-index operations of Frank Russell include the Russell 2000 barometer of small-cap stocks, while the investment business has $256B in assets under management.
Those ETFs with more small- and mid-cap exposure like the SPDR S&P Biotech ETF (XBI +5.7%) and the PowerShares Dynamic Biotechnology & Genome Portfolio (PBE +7.4%) are partying. It also turns out the XBI and PBE are the two largest holders of Idenix stock.
Biotech ETFs with a focus on large caps - the iShares Nasdaq Biotechnology ETF (IBB +0.5%) and the Market Vectors Biotech ETF (BBH +0.4%) - are having more subdued sessions.
Major stock index futures are all modestly higher as equities look to bounce from yesterday's struggles. Tuesday's big loser, the Russell 2000 (IWM) is up the most, +0.4%. There are a number of Fed speakers today as well as the release of the most recent FOMC minutes at 2 ET.
Europe's little-changed and the biggest mover in Asia overnight was Shanghai, +0.8%.
The 10-year Treasury yield is up two basis points to 2.53% and gold is lower by $3 per ounce to $1,292.
Chicago-based Good Harbor Financial is among the largest ETF portfolio managers and the company in May began to rebalance its $11B U.S. Tactical Core Strategy twice a month instead of once - today marks the first mid-month trade for the portfolio, reports the WSJ.
Good Harbor's main strategy today, says the Journal, looked to be selling small caps as well as two ETFs tied to the S&P 500 (SPY -0.7%), and volume spiked in the iShares Russell 2000 ETF (IWM -1.6%), the ProShares Ultra Russell 2000 (UWM -3%), the iShares Core S&P 500 ETF (IVV -0.7%) and the ProShares Ultra S&P 500 (SSO -1.5%).
Good Harbors was the largest single holder of three of those funds as of the end of March, and the 2nd largest holder of the fourth.
As it sold the equity ETFs, Good Harbors appeared to be buying two mid-to-long-dated Treasury bond ETFs, the iShares 7-10 Year Treasury Bond Fund (IEF +0.3%) and the ProShares Ultra 7-10 Year Treasury ETF (UST +0.7%), with both having volumes many multiples higher than normal.
Good Harbors was also a seller of small caps and a buyer of Treasurys in early May, says the Journal, which earlier this year reported traders growing accustomed to waiting for the firm's monthly rebalance.
London Stock Exchange (LDNXF) is in exclusive negotiations with Northwestern Mutual Life Insurance to buy the latter's asset-management and stock index unit, Frank Russell, which the WSJ reports could be worth $3B.
The stock-index operations include the Russell 2000 barometer of small companies, while the investment business has $260B of assets under management. (PR)
Barely in the green for the year at the moment, the S&P 500 could slide 10% between now and October, says the technician, but there's a stealth bear market already happening in the Nasdaq, S&P Mid-Cap, and Russell 2000, and when support breaks (less than another 2%), those indices could see 20-25% declines.
The situation reminds him of 1994 when the Dow and S&P were in a trading range all year, but things were falling apart underneath the surface.
Following the washout into October, though, Acampora sees a "very, very strong Q4."
Stocks are set to add to yesterday's losses at the open, with S&P 500 (SPY) futures down 0.2% and Nasdaq 100 (QQQ) off 0.3%. The small cap Russell 2000 (IWM) - which entered correction territory yesterday - is down 0.2%.
Europe's posting moderate losses and the Nikkei finished down 1.4%, though Shanghai climbed 0.9%.
The 10-year Treasury yield holds at 2.50%, about its lowest level of the year, and gold is flat at $1,295 per ounce.
Coming in the same week when the Dow and S&P 500 hit new record highs, the Russell 2000 (IWM -1.6%) today tumbled into correction territory, now off 10.2% since its record high hit on March 4.
The Dow (DIA -1%) and S&P (SPY -1.2%) haven't suffered a correction since 2011 H2, though the Nasdaq fell into correction in November 2012 (the tech index fell nearly 10% from March through mid-April this year, but bounced).
The question at hand is whether the large-cap averages will follow the Russell. or continue to go their own way to new records.
The Dow and S&P are at all-time highs, but what are tumbling small caps and Treasury yields trying to say? Off nearly 1% today, the Russell 2000 (IWM) has returned to flat on the week after gaining about 2.5% on Monday. It's down roughly 9% from the March high.
The 10-year Treasury yield, meanwhile, is off a big seven basis points today to 2.54% - its lowest print since October. A dovish monthly inflation report from England is helping, as are ideas the ECB is prepping even easier monetary policy to be announced at its June meeting. Ignored is today's PPI index showing a 0.6% jump in wholesale prices in April vs. expectations for just a 0.2% bump. TLT +1.1%
Small-cap stocks enjoyed a bit of a bounce yesterday but they've lagged the broader market this year, and Credit Suisse predicts more pain ahead.
Even though many individual growth stocks have been hit much harder, the Russell 2000 has dropped only ~9% from its early March 2014 peak; average and median pullbacks in the Russell 2000 since the mid-1990s have been a respective 21% and 14%, so Credit Suisse thinks the historical track record points to the Russell approaching 1,000 (vs. its YTD peak of 1,209 and Friday's close of 1,097) before finding a bottom.
The iShares Russell 2000 ETF (IWM) is down ~5% YTD, with its biggest losers - MLI, MDSO, FNGN, ISIS - all plunging at least 40% so far.
Meanwhile, the S&P continues to hold up relatively well, and Citigroup’s Tobias Levkovich thinks easier lending standards for bigger companies is an important factor explaining large-cap outperformance; Bespoke sees large-cap stability holding just as much weight as the argument that weakness in momentum names eventually will spill over to the broad market.