If your time horizon is short and you lean towards a fascination with small-cap stocks, heads up: Goldman Sachs has ditched its recommendation on the Russell 2000 index. In late January, with the index at about 799, analysts initiated a target of 860 – implying gains of about 9.2 per cent if everything worked out. Now, though, their switch comes with the small cap index at just 824, up just 3 per cent from their initial recommendation.
"We initiated the trade to express the view that cyclical bits of the U.S. equity market were likely to be supported by ongoing improvements in the U.S. data, that U.S. monetary policy had turned incrementally more accommodative, and that the Russell 2000, in particular, appeared (at the time) to be lagging behind both the data and other pro-cyclical implementations," the analyst said in a note on Thursday.
What has changed? After a good start in early February, the past month has brought some more impressive U.S. "macro" data but the Russell 2000 has failed to respond – underperforming the large-cap S&P 500.
"This may partly reflect the headwinds from higher oil prices and with today's weaker-than-expected ISM, and forward-looking components also turning softer, we have decided to close this position with modest gains," the Goldman Sachs analysts said. They now have a "neutral" view on the small-cap index.
David Berman