SAN FRANCISCO (Reuters) – Wall Street’s most widely followed benchmark of small-cap stocks tumbled into a bear market on Monday as investors grew more worried about slower profit growth and rising interest rates.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 11, 2018. REUTERS/Brendan McDermid
The Russell 2000 Index fell 2.32 percent for the day to its lowest level since August 2017. It is now down more than 21 percent from its Aug. 31 record high close. A drop of 20 percent or more from a record or long-standing high closing level is the typical definition of a bear market.
The Russell 2000’s descent into a bear market follows the S&P 600, another small cap index, which on Friday closed down 20 percent from its August high. On Monday, the S&P 600 lost another 2.34 percent.
Concerns about the pace of interest rate hikes by the U.S. Federal Reserve have hurt stocks in general, and particularly small caps, which often carry higher debt loads than larger companies.
Small-cap companies also often rely on debt funding via bank loans with adjustable rates instead of through fixed-rate bonds sold through capital markets, making them more sensitive in the short term to rising interest rates.
“Relative to large caps, they do have less access to credit, so when conditions start to tighten, they’re going to feel it more than a major company like Apple, which can raise capital just about anywhere. So you’ll see small caps respond more violently to any credit deterioration,” said Jack