The Russell 2000 fell for a sixth straight week through Oct. 16 as Wells Fargo Investment Institute maintained an unfavorable view of U.S. small-cap stocks amid weaker earnings forecasts and debt-related risks.
The index closed Oct. 16 at 2,721.37, down 3% for the week, according to figures published by The Associated Press. Its losing streak began with the week ended Sept. 11. AP closing levels show a 5.7% decline over the first five weeks, from Sept. 4 through Oct. 9. The index gained 0.3% to 2,728.30 on Oct. 19.
Wells Fargo’s Oct. 12 strategy report rated U.S. small-cap equities unfavorable and large-cap equities favorable. In a May 26 analysis, the institute said forecasts for small-cap earnings in 2026 had been cut 7% as of May 18, while large-cap forecasts had risen 8%.
The May analysis also identified a balance-sheet risk. Wells Fargo said smaller companies carried more debt relative to earnings than larger ones, a difference that may increase financial risk and reduce flexibility when interest rates are high. Companies with more floating-rate debt are more sensitive to rate changes because their borrowing costs move with those rates.
Wells Fargo described a longer-term change in the Russell 2000’s composition. Bloomberg data cited by the institute put the share of companies without earnings at about 40%, compared with roughly 17% two decades earlier. The institute attributed part of the index’s long-term decline in profitability to high-quality companies staying private and profitable companies being acquired. It also said small-cap earnings forecasts had fallen by an average of 20% between the start and end of a year since 1995.
Wells Fargo favored large- and mid-cap equities over small caps in its May 26 assessment. That recommendation reflects the institute’s assessment of the relative risks; the Russell 2000’s Oct. 19 gain left its six-week losing streak intact.
