Retail holders of smaller cap stocks ought to be more worried now.
Because given the global trade headwinds that will usher in deflation (and maybe inflation too) in the coming months, only the strong, robust and resilient companies can withstand the coming challenging times.
And you'd expect a Flight to Quality over time. In Australia, you constantly see CBA as being the few stocks that can weather market adversity. For now.
Reasons why smaller cap stocks especially those not generating cashflows and/or with high debts could come under more selling pressures ahead:
1. Sectoral downgrades by instos research
2. Higher for longer interest rates if inflation makes a new resurgence post-tariff
3. A rush/scramble to undertake capital raise (CR) at highly discounted price due to rising risk premium to subscribe
4. Financiers may pull the plug on them (and they can be brutal to safeguard their own interest)
The risk:reward to own equities have skewed considerably to the downside following this new era of global trade uncertainties. Looking at day to day price movements can lend complacency to stay invested. But it is the ability to pre-empt the likely scenario going forwards that best determines future likely forward price trajectory.
If you have been frustrated that while our XJO has just corrected some -10%, you have been down a lot harder on your smaller cap stocks, be prepared for an even greater underperformance of smaller cap stocks relative to the larger cap stocks with resilient qualities.
As I do not invest in blue chip stocks, this has closed the door for me as far as equities are concerned.
As for the indices, I question the ability of S&P500 being able to reclaim its 6000+ level if the Mag7's domination has truly ended. And as we know, those indices influence market sentiment quite considerably.
