The Great Rotation Is From Small Caps To Large Caps
The Great Rotation won’t be from stocks to bonds, say investors on StockTwits.com. It will be from small and mid-cap stocks to established, multi-billion dollar companies. And the trading action so far this week supports their view.
— David Durand (@SunAndStorm) Mar. 26 at 02:14 PM
The iShares Russell 2000, $IWM, an ETF of companies with market caps under $2 Billion, is down about 3% in the past five days. It fell an additional 1.4% intra day. Meanwhile, the Dow Jones Industrial Average, $DIA, is up about 0.8% over the same time period.
— Mark Arbeter CMT (@MarkArbeter) Mar. 26 at 02:12 PM
The Nasdaq has fared much worse than the Dow. It is down more than 2% in the past five days. But much of the losses have come from younger, smaller companies. Hundred-billion dollar tech giants such as IBM, $IBM, Cisco, $CSCO, Apple, $AAPL, Microsoft, $MSFT have fared relatively well, posting gains of more than a percent each over the same time period.
Investors say the reason for the rotation is valuation. Though investors are still willing to bet on stocks and global economic growth, they fear the valuations of small cap names with relatively little or no profits have become outsized due over-excitement around the potential of new technologies, mobile apps, and medications. Perhaps the greatest evidence of this new concern is the double-digit drop in King, $KING, shares on the first day of trading.
— theSawse (@theSawse) Mar. 26 at 02:48 PM
A bet on large, established companies is seen as safer play for investors who believe the global economy will continue to steadily grow.
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