Russell 2000 Tests Support Level as Small-Cap Rout Deepens

(Bloomberg) -- While dip buyers have softened the losses in U.S. equities, investors continue to shun the smallest American companies.

The Russell 2000 Index, darling of the market for the first half of 2021 as the economy boomed, slid 1.2% Thursday, taking its drop this month to more than 4%. It briefly fell more than 10% from its March peak, the generally accepted definition of a correction. 

The small-cap gauge is now lower than the large-cap Nasdaq 100 Index for the year and is in danger of breaching a technical level that has provided support in prior bouts of selling.

Markets have been roiled this week amid growing concern around the Covid-19 delta variant and the withdrawal of Federal Reserve stimulus. Down for a sixth straight session on Thursday, the small-cap measure is headed to the longest streak of losses since February 2020 and trading below its 200-day moving average for the first time in 11 months.

Small-caps had outperformed the tech-heavy Nasdaq 100 for most of this year until last month, when they lost that edge as investors moved into growth stocks and other assets seen as safer bets in times of economic uncertainty. 

“People are looking for a little bit more safety right now and obviously smaller caps tend to be a little bit more volatile,” said David Wagner, a portfolio manager at Aptus Capital Advisors. “They’re more dependent on GDP, dependent on growth, dependent on an accelerating economy, and given the emergence of the delta variant, you’ve somewhat capped some of those from a sentiment standpoint.”

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