Economics
Speculative Edge of Stock Market Is Where Rate Angst Is Biting
- Small-cap stocks see rally unwinding as rate tide goes out
- For first time since 1999, low-quality companies lose premium
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Higher rates, are they good or bad for stocks? Nobody knows. But for edgier districts of the equity market where rock-bottom borrowing costs have provided years of cover, the early verdict isn’t good.
Consider the Russell 2000 Index of small caps, which a month ago was on pace for its third consecutive double-digit year despite the fact that a third of its members don’t make any money. Those shares have suddenly stopped outperforming as 10-year Treasury yields busted above 3 percent.