Banking Stress and Economic Slowdown Weigh on U.S. Small-Cap Companies

The recent banking stress and potential economic slowdown have caused U.S. small-cap companies to struggle, with the Russell 2000 benchmark falling 7.9% since early March. This has resulted in a major constituency issue for U.S. small-cap ETFs, which are heavily weighted toward regional banks and the biotech sector. Analysts note that U.S. small-cap ETFs are heavily weighted towards regional banks and biotechnology stocks that are known for their volatile performance. The performance of these ETFs can be heavily influenced by the performance of these particular sectors, which may not be representative of the broader market. Global small-cap ETFs have better exposure to cyclicals and are more focused on industrial equipment and mining. They may also be a better alternative to U.S. small-cap exposure if a recession unfolds.