Download the Schwab app from iTunes®Get the AppClose

Trader Q&A: Can Small Cap Stocks Predict the Market?

Schwab's Trading Services Team covers how the small caps market can give traders an indication of what to expect in the market.

Click to show the transcript

[John] All right. Corey from New York wants to know, "Are small caps sending a warning about the market?" Okay. Well, small caps sometimes--if there is some impending weakness in the market, sometimes they'll be the first to show weakness. Today, you know, we're pretty flat in the market today. Russell 2000 is one of the small-cap indices. The Russell 2000 actually is up today. And it's up more than the other indexes. That's a very short-term view. But right now, maybe the Russell 2000--because small caps are more risky typically over the long haul than large caps, they can be an indication that people might be willing to accept a little more risk in the market. And that might be a short-term bullish indicator.

[Randy] Yeah. I think that's exactly right. Small caps have a tendency to be a little bit more volatile, a little bit more risky. I do know that, in a general sense, that there has been a little more bullishness in small caps lately than there has been in previous months. And again, I would go back to what I was saying previously, which is, while we may see some short-term turmoil here in the next few weeks, the long-term outlook is generally pretty good. I think--you know, if you're looking for small caps--again, keep in mind, you're going to take a little bit more risk involved in small caps. But the small-cap market has been doing quite well. And the expectation from the general analyst community right now is fairly bullish, I think, still in small caps. Yeah.


Schwab has tools to help you mentally prepare for trading

Learn more >

Talk trading with a Schwab specialist anytime.
Call 888-245-6864
M-F, 8:30am - 9:00pm EST

Get 500 Commission-Free Online Equity and Options Trades for Two Years

Learn More >

Important Disclosures

Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Covered calls provide downside protection only to the extent of the premium received and limit upside potential to the strike price plus premium received. With long options, investors may lose 100% of funds invested. Multiple-leg options strategies will involve multiple commissions. Please read the Options Disclosure Document titled Characteristics and Risks of Standardized Options

Any opinions expressed herein are subject to change without notice at any time.

Schwab does not recommend the use of technical analysis as a sole means of investment research.


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.