The stock market shook up investors across the globe this week amid an uncertain global climate. Small-cap stocks took a particularly large plunge, making it the latest casualty in a series of risk-off moves.
Small-cap stocks are equities that have a lower market capitalization, most often those with a total value of less than $3 billion. Looking at the performance of small-cap stocks, one can see that many investors are choosing to take on less risk by taking their money out of small-caps.
This is in direct contrast with large-cap stocks, which have been doing well despite the recent volatility in the markets. Large caps have been bolstered by tech stocks, with behemoths like Amazon and Apple continuing to put up strong performances in the face of potential economic worries.
The big difference between large-cap stocks and small-cap stocks is the level of stability. Small-cap stocks are known to be more volatile and less reliable than their larger counterparts. This is why, when markets start to become more turbulent, investors often choose to take their money out of small-cap stocks as quickly as possible.
The recent worries over the global economy have shaken investor confidence, and that has been reflected in the performance of small-cap stocks. The uncertainty around the U.S.-China trade deal has been one major factor driving investors away from the risk-prone small-caps.
It’s unclear exactly how long the risk-off move will last, but so far it has been a significant factor in driving the markets down. Investors should take heed of the current cautionary attitude towards small-cap stocks and brace themselves for further disruption as the market continues to try and find a balance.