Smallcaps Get Crushed

The Russell 2000 smallcap index got crushed today, falling 2%.  The majority of the decline came in the final 30 minutes of trading when the index fell 1.30%.  While it's not too out of the ordinary for the Russell 2,000 to fall 2%, it typically happens when the rest of the market is down big as well.  That wasn't the case today, as both the Dow and S&P 500 fell just 30 basis points.

To highlight the huge difference in performance that we saw today between largecap and smallcap stocks, we broke the Russell 3,000 -- which includes all Russell 1,000 (largecaps) and Russell 2,000 (smallcaps) stocks -- into deciles (10 groups of 300 stocks each) based on market cap and calculated the average one-day percentage change of the stocks in each decile.

As shown below, the decile of the 300 largest stocks in the Russell 3,000 was down just 0.40% today, while the bottom four deciles of the smallest stocks all fell more than 2.4%!

Knight Capital certainly took it on the chin today, and the company is known for trading in a lot of smallcap NYSE stocks.  It's definitely strange that we saw such a big divergence between smallcaps and largecaps on the same day that Knight Capital had such a big technical problem.  If the bulk of the declines in smallcaps today were due to trading issues and not anything fundamental, you would hope that a bounce back would occur.  Unfortunately, though, sometimes the damage can't be undone.