GAP, ANF, CAVA: The Russell 2000 Small-Cap Index Enters Correction Territory

The Russell 2000 index (RUT) of small-cap stocks has officially entered a correction, defined as a decline of 10% or more from recent highs.

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The Russell 2000 officially entered a correction on March 20, having fallen 10% from its most recent high reached in January of this year. The Russell 2000 is the first of the major U.S. stock market indices to fall into correction this year.

Small-cap stocks are loosely defined as securities that have a market capitalization of less than $10 billion. Well-known small-cap stocks include clothing retailers The Gap GAP -0.96% ▼ and Abercrombie & Fitch ANF -1.08% ▼ , as well as restaurant chain Cava Group CAVA -4.30% ▼ .

**What’s Pressuring Small-Cap Stocks? **

The decline in small-cap stocks is especially notable as the group outperformed and led the U.S. market to start this year. However, the group has come under pressure as the ongoing war in Iran drives energy prices higher, with a more than 50% increase in Brent crude oil.

Fears of an inflation shock from high energy prices is bad news for small-cap stocks. Smaller company’s tend to borrow more money to fund their operations and growth, making them sensitive to interest rates. With expectations growing for interest rate hikes this year to quell inflation, the Russell 2000 has sunk.

Comparing Small-Cap Stocks

Below is a chart comparing stocks GAP, ANF and CAVA. As one can see, each stock is highly rated and carries a smart score of seven or eight, as well as Buy ratings. This means the outlook for each stock is generally positive.

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