The Problem With The Russell 2000
It made an already precarious situation worse.
That's one way to describe the knock-on effect of last month's short squeeze for the quality of US small-caps.
While the furious rally in GameStop and other Reddit "meme stocks" grabbed all the headlines, SocGen's Andrew Lapthorne this week noted that "the broader rally in stocks with bad balance sheets has been going on for longer than this short-squeeze."
In fact, the weighting of lower-quality companies in the index is the highest going back a
This may be affected by the surge of early stage biotech and uber-growth tech/consumer-tech names. Those kinds of stocks will have large negative EBIT and thus depress the R2K’s aggregate EBIT. However, the reality is that no-one expects them to have positive interest coverage, and they don’t depend on debt financing – those are purely equity-financed models.
Thanks jyl. I appreciate your comment. That nuance hadn’t occurred to me. Definitely worth considering.