*WALL ST. WEEK AHEAD: U.S. RETAILER EARNINGS TAKE CENTER STAGE AMID DEBT CEILING DRAMA, REGIONAL BANKING WOES $DIA $SPY $QQQ $IWM 🇺🇸 🇺🇸
Like the inverted U.S. Treasury yield curve and strength in gold prices, the weakness in shares of smaller companies - which tend to derive profits domestically and be more vulnerable to economic shifts than larger firms - is one of several signs that investors are uneasy about the economic outlook.
Investors are"trying to position their portfolios for what they think is going to happen in the economy," said Eric Kuby, chief investment officer at North Star Investment Management, which specializes in small caps."Small caps being out of favor is another signal that investors are bracing themselves for an impending recession."
Economic data has so far shown few signs of a sharp drop-off in growth, though inflation and some other important metrics have cooled. Still, some market participants believe the Fed's 500 basis points of rate increases over the past year are only starting to impact the economy. An April survey by the National Federation of Independent Businesses found 67% of small business owners use a small or regional bank, 17% use a medium-size bank while 14% use a large one. Smaller bank stocks have been hit particularly hard in recent weeks while financials are also more heavily represented in indexes tracking small cap shares, accounting for some of their weakness in relation to the S&P 500.
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