My favorite headline this morning:

quote:

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The prospect of rising interest rates has been especially hard on the Russell 2000 small-cap index, in large part because of the high proportion of small-caps that aren’t making money.

During the market selloff of recent weeks, investors have been shedding speculative investments from tech stocks to cryptocurrencies. Speculative investments with their promise of higher returns thrived in the ultra-low-rate environment of 2021. Now that the Federal Reserve may raise interest rates as soon as March to combat inflation, investors are less comfortable with risk.

The companies in small-cap index funds tend to have less-diversified business lines and more of a chance of not turning a profit.

Companies making up 31% of the Russell 2000 were unprofitable as of the end of 2021, according to an analysis from Jefferies of earnings over the previous 12 months. By contrast, 5.7% of the Russell 1000 index of larger firms was made up of companies without earnings.

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