Stocks last week: Small companies are being crushed

NS Russell 2000 (RUT) index, the home of companies like Crocs (CROX), Wholesale of BJ (BJ) and others, with an average market valuation of about $3 billion, are currently trading 10% below their 52-week high. That means it is in a correction.
An iShares exchange-traded fund of microcap stocks (IWC) (even smaller firms than those in Russell 2000) is almost 15% below its peak. So it is likely to go into a bear market.

This makes it difficult because most smaller US companies are more dependent on the US economy (and US consumers) for their revenue and earnings than the Dow and S&P 500 giants. They do not generate much revenue and profit from the markets of the world.

So tough times for smaller stocks may be a more accurate barometer of the US financial landscape than what’s happening with big tech companies like Apple (AAPL), Microsoft (MSFT) and Google owners Alphabet (GOOGLE) – has been much better maintained during the recent market drop.
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“Onion peeling goes back one layer and there is more serious rotation in subsurface stocks,” said Liz Ann Sonders, investment strategist at Charles Schwab.

Sonders noted that many of the smaller companies in the S&P 500 outside of the leading technologies have tended to trend major corrections over the past year. There is just enough “strength” among the larger companies in the index to mask broader weakness in the overall market.

This divergence has also caught the attention of other strategists on Wall Street.

David Wright, co-founder of Sierra Mutual Funds, noted in a recent report that many stocks on the NYSE and Nasdaq hit 52-week lows instead of their previous highs.

“This means that only a handful of large stocks are holding the index up, while a growing number of stocks are actually already in a bear market,” Wright said.

The market retracement for smaller stocks is a big reason why CNN Business Fear & Greed Index suddenly plunged into near-‘extreme fear’ territory after registering as ‘extreme greed’ just a month ago. The volume of stocks going down is also more than that of stocks going up.
Small companies can also not afford higher wages for employees as easily as the company’s enormous assets. Profit margins (and overall earnings) can suffer as they try to stay competitive with wages, bonuses and other perks.

The manic meme is back?

GameStop (GME) will report earnings after the close of Wednesday. Stocks, along with cinema chains AMC (AMC), has become synonymous with the stock meme revolution supported by traders on Reddit and other social media sites.

Shares of GameStop are up more than 850% so far in 2021. But the stock has had an extremely bumpy ride, to put it mildly. GameStop is also trading close to 65% below the all-time high it reached in January.

It’s easy to forget that GameStop is actually a legitimate business and not just a “game” that has become a game of traders trying to punish short-selling hedge funds bet against the company.
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For what it’s worth, there’s growing hope that the company’s business is changing under Matt Furlong, the new and former CEO. Amazon (AMZN) moderators joined GameStop earlier this year.
GameStop has also made a bigger push into e-commerce since Tough (CHWY) co-founder Ryan Cohen took a majority stake in the company and was later appointed chairman.

The company still expects a loss in the current quarter. But Wall Street is predicting holiday profits that end in January and predicts that GameStop will make money next fiscal year.

Demand for video games at GameStop will be strong. The bigger challenge could be widely publicized deficiency of Microsoft’s Xbox Series X and Sony’s (SNE) PS5 console do global supply chain issues affecting semiconductors.


Second: Factory in Germany

Tuesday: AutoZone (AZO), Fees are collected by brothers (TOL), Repairs (SFIX) income
Fourth: China Trade Report; Campbell Soup (CPB), Brown-Forman (BFB), Income from GameStop
Thursday: China’s inflation; US unemployment claims; Hormel (HRL), Costco (PRICE), Broadcom (AVGO), Dai, Lululemon (LULU) income

Friday: US consumer prices; Consumer Psychology of the University of Michigan


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