Small Stocks Face a Challenge This Year --- Some Warn These Shares May Fare No Better Than Big Stocks
For the past two years, with the major stock indexes plummeting, investors have searched for places to hide.</br></br>And they found them in the form of small and middle-size stocks. As the broad Standard & Poor's 500-stock index of large stocks was falling more than 15% over the past two years, the S&P's indexes of small stocks and of medium-size stocks were rising more than 15% each.</br></br>Similarly, when stocks rebounded following the terrorist attacks, small stocks rose 28% and middle-size stocks rose 26%, eclipsing the 19% gain put in by large stocks. The Russell 2000 small-stock index finished the full year in the black, up 1%, compared with declines at big-stock indexes such as the S&P 500, which fell 13%, and the Dow Jones Industrial Average, down 7%.</br></br>But this year, the run has reversed itself, at least for now. Small stocks, which typically get a boost at the start of a new year, have been falling. The Russell 2000 small-stock index, in fact, has been among the year's weaker performers, down 1.9%, compared with a drop of 1.3% for the S&P 500.</br></br>Small-stock fans, who multiplied as the group moved into the lead last year, insist the problem is a temporary, technical one -- essentially a pause after a great finish to 2001. But they also acknowledge that they expect small stocks to cool a bit this year. And some analysts have begun to warn that small stocks, which trailed large stocks for most of the 1990s, may be returning to days when they do no better than big stocks.