Small-cap recap/preview: Underperformance, extreme volatility, 30 firms to report

Last week, small caps were the worst-performing segment of the U.S. market, while volatility reached staggering levels — 3.5 times the five-year average. Here's a recap of what happened in the space between April 7 and April 11, and what to expect in the week ahead.

Last week, the small-cap Russell 2000 index rebounded 1.82% to close at 1,860.2 points on Friday, trailing the S&P 500, for example, which gained 5.70%. Freedom Broker noted in its weekly report that small caps were the worst-performing segment of the U.S. market.

Last week, the Russell 2000’s volatility reached an eye-popping 86.2%. For context, the five-year average stands at 24.5%, according to the Freedom Broker report.

This volatility was driven by uncertainty around the latest tariffs imposed by the Trump administration. On April 9, the “reciprocal” tariffs on imports from countries with which the U.S. has the largest trade deficits came into effect. Later that day, however, Trump announced a 90-day pause on those tariffs for trading partners willing to enter negotiations, with the exception of China. This sparked optimism among investors, who rushed to snap up battered stocks. As a result, the Russell 2000 soared 8.66% on April 9. However, the selloff resumed the next day after the White House announced that the overall tariff rate for China would be raised to 145%. In that session, the Russell 2000 plummeted 4.27%.

This week, Freedom Broker expects the Russell 2000 to remain within a range of 1,694-1,921 points. It thinks the bearish trend for small caps could continue.

The Royce Small-Cap Opportunity Fund has been one of the investment funds hit hardest by Trump’s tariffs, according to the rating agency Morningstar.

Rounding out the top three tariff victims are the ARK Innovation ETF, Cathie Wood’s flagship fund, and Fidelity Leveraged Company, which invests in junk bonds.

“Those owning small- and mid-cap stocks and companies with more speculative prospects or wobblier finances and business models fared the worst,” Barron’s quoted Morningstar senior principal Dan Culloton.

This week, investors are awaiting the release of first-quarter earnings. The effect of the tariffs will not be reflected in these results, but attention will be focused on how company executives interpret current economic and political developments. In April 14-18, 19 companies from the Russell 2000 and 11 from the S&P SmallCap 600 are due to report.

On Wednesday, April 16, the U.S. Census Bureau is scheduled to release the March retail trade report. Freedom Broker expects it to show increased demand for cars ahead of anticipated tariff-driven price hikes. Overall, it sees retail sales rising 0.3% month over month or more. Note that in February, they were up 0.2%.