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The Russell 2000 index continued to underperform the Dow Jones and Nasdaq 100 indices in the first quarter of 2024. The closely-watched iShares Russell 2000 ETF (IWM) rose by about 5% in Q1 while the Invesco QQQ and SPDR SPY ETFs jumped by more than 10%. 
IWM vs QQQ vs SPY
Why the Russell 2000 index lagged
Small-cap stocks have underperformed because they mostly lack the key catalysts that pushed the other large companies higher. For example, they lack well-known brands like Nvidia (NVDA), Super Micro Computer (SMCI), and Amazon (AMZN) that are dominating in their respective industries.Most importantly, these companies have struggled in the era of high-interest rates. The Fed has pushed rates to a two-decade high of between 5.25% and 5.50%. Big companies like Apple (AAPL), Microsoft (MSFT), and Berkshire Hathaway (BRK-A) do better in high-interest rates environments because of their substantial cash balances.Small-cap companies, on the other hand, often don’t have substantial cash in their balance sheets. Many of them are also loss-making, meaning that they have to raise cash by selling shares. This is a common situation among biotech companies. Biotech companies were among the best performers in the Russell 2000 index in the first quarter. That happened as the mergers and acquisitions (M&A) trend continued in the sector. Most big companies like GlaxoSmithKline (GSK), Abbott Labs (ABT), Johnson & Johnson (JNJ), and Merck (MRK) have all made buyouts recently.Some of these companies are contending with a slew of patent expiration for their key drugs. As a result, they are acquiring companies that will help them to offset this loss of revenue.The best-performing companies in the Russell 2000 index in Q1’24 were Ocean Biomedical (OCEA), Viking Therapeutics (VKTX), Janux Therapeutics, Longboard Pharmaceuticals, and Avidity Biotherapeutics. As we have written before, Viking Therapeutics (VKTX) jumped sharply because of its weight loss drug.The other notable gainers in the Russell 2000 index were MicroStrategy, Veritone, Soundhound AI (SOUN), Li-Cycle, Carvana (CVNA), and Oscar Health (OSCR). MicroStrategy’s share price has jumped by 160% this year because of its huge Bitcoin holdings. Soundhound shares surged as demand for artificial intelligence companies rose and after Nvidia made a huge investment in it. Veritone stock also soared because it transitioned to artificial intelligence.
Russell 2000 top laggards
There were many notable crashes in the IWM ETF. WW, formerly known as Weight Watchers stock price tumbled by over 80% in Q1 after Oprah Winfrey left its board of directors. Oprah has become more vocal about her use of weight loss drugs like Ozempic. Bakkt Holdings (BKKT), a company in the crypto industry, collapsed by over 79% in Q1 as concerns about demand for its solutions rose. This crash marks a major downfall for a company that was once a technology unicorn backed by the likes of the New York Stock Exchange. It has also warned that it might not continue as a going concern.iRobot (IRBT) stock price collapsed in Q1 after regulators blocked its acquisition by Amazon, the biggest e-commerce company in the world. Other top laggards in the index were Office Properties Trust (OPI), Spirit Airlines (SAVE), and Sunnova Energy (NOVA).More By This Author:Pudgy Penguins Surpasses BAYC To Become The Second-Largest NFT CollectionIntel Stock Could Gain Up To 30%: Here’s Why XRP Whales On The Move As Potential Sec Vs. Ripple Settlement Looms
