Line chart showing the current percentage of companies with negative trailing twelve-month earnings within the Russell 2000 Index, Russell Midcap Index and the S&P 500 Index from January 1995 to December 2023. The chart illustrates that the Russell 2000 Index currently has significantly more non-earners (41%) than Russell Midcap (18%) and the S&P 500 (6%) indexes.
Sources: Bloomberg and Wells Fargo Investment Institute. Monthly data from January 1, 1995 to December 31, 2023. The S&P 500 Index is a market capitalization-weighted index generally considered representative of the U.S. stock market. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results. Investing in stocks involves risk and their returns and risk levels can vary depending on prevailing market and economic conditions. The prices of small and mid-company stocks are generally more volatile than large company stocks. They often involve higher risks because smaller companies may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.
Key Takeaways
- The era of easy money may have passed. This does not bode well for the elevated number of non-earning small-cap companies.
- Mid-cap and large-cap indexes are much less impacted by this potential risk and the majority of these companies are likely to remain well insulated from any potential credit crunch.