Bond yields went up. Small cap stocks went down. Traders acted surprised that companies with no cash flow and debt maturing in 2027 don't love higher borrowing costs.
The Russell 2000 ate shit while the S&P 500 kept climbing. Large caps print money and buy back stock. Small caps dilute shareholders and pray someone picks up the phone when they call their credit line. These are not the same asset class.
Some traders see it getting worse. They looked at a chart. They saw a line going down. They extrapolated that line into the future using the same brain that bought leveraged ETFs at all-time highs. Now they're telling CNBC that small caps could fall another 15% if yields keep rising.
Here's what happened: institutions sold bonds. Bond prices dropped. Yields spiked. Every CFO at every micro-cap company with floating rate debt opened Excel and started updating their interest expense projections. Then they opened their calendar and started canceling expansion plans.
Retail traders didn't notice because they don't read 10-Qs. They just know their account balance is smaller and their wife's boyfriend drives a nicer car now.
The S&P 500 doesn't care about bond liquidation because Apple has $162 billion in cash and pays 2.8% on its term debt. Small caps care very much because they have $14 million in cash and pay whatever the bank feels like charging on Thursday.
Rising oil prices made it worse. Energy costs eat margins. Small caps have no margins. You can't eat something that doesn't exist, but oil prices tried anyway.
Traders keep waiting for small caps to catch up to large caps. They've been waiting since 2021. They'll be waiting through 2027 while the Russell 2000 trades like a penny stock with a governance problem.
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