Investors in the United States have been shifting their investments away from small-cap stocks as the much-touted stock market rotation appears to be fizzling out. Traders pulled $2.6 billion from the iShares Russell 2000 ETF, the most in nearly three years, signaling a mass exodus from small-cap stocks. This comes after a period of increased investor interest in small-cap stocks, which saw the Russell 2000 rise 10% in July, the largest monthly gain since the end of last year. However, the gauge is now down approximately 8% for August as investors recalibrate their expectations for US economic growth. [b20aa8f0]
The shift away from small-cap stocks follows a weaker-than-expected July jobs report, which reignited fears about the health of the US economy. Investors had initially bet on small-cap stocks, expecting them to benefit from a coming era of lower interest rates and other factors. However, the recent jobs report prompted a repricing of these expectations, leading to the mass exodus from small-cap stocks. [b20aa8f0]
The stock market rotation also affected other areas of the market that tend to benefit during risk-on phases. The iShares iBoxx High Yield Corporate Bond ETF saw a $1.5 billion outflow last week, while the iShares MSCI Emerging Markets ETF experienced a nearly $1.2 billion withdrawal, the most since October. In contrast, larger-cap indexes like the S&P 500 held up better relative to the small-cap gauge, ending the week relatively unchanged. [b20aa8f0]
The shift in investor sentiment away from small-cap stocks and other risk-on assets highlights the ongoing uncertainty and volatility in the market. Investors are recalibrating their expectations and seeking safer investment options amidst concerns about the health of the US economy. This cautious approach is reflected in the increased inflows into money market funds and the outflows from equities and other sectors. It underscores the importance of diversification and risk management in investment strategies during uncertain times. [f71984c3] [b20aa8f0]
BlackRock's iShares Russell 2000 ETF has seen $4.4 billion in outflows since the start of the year, indicating that the rotation from growth to value stocks may be losing steam. The ETF, which is the largest ETF tracking small-cap stocks, has underperformed the broader market with a 4.5% decline compared to the S&P 500's 3.7% gain. The outflows from the ETF are seen as a sign that the stock market rotation is faltering. The iShares Russell 2000 ETF has been a popular choice for investors looking to gain exposure to small-cap stocks, but its recent underperformance and outflows suggest a shift in investor sentiment. [1c7bc28b]