High interest rates continue to place a burden on small and midsize US stocks, largely due to the Federal Reserve's policy of maintaining high borrowing costs, as revealed in a recent investigation. This strategy has adversely impacted smaller firms with weaker financials, as reflected in the downturn of indices like the Russell 2000 and S&P 500 since July.
Experts such as Ed Clissold from Ned Davis Research and Dec Mullarkey from SLC Management have underscored that these rate hikes have resulted in record interest expenses for indices like the S&P 600. Goldman Sachs (NYSE: GS ) has highlighted a critical issue, noting that 30% of Russell 2000 companies' debt is floating-rate, which escalates their risk exposure.
Particularly vulnerable are life sciences firms, which are overrepresented in the Russell 2000 index. Ryan Hammond points out their susceptibility due to their lack of profitability and the ongoing pandemic.
In contrast, certain large tech companies, including Alphabet (NASDAQ: GOOGL ), are benefiting from rising interest income. These firms, often referred to as the 'magnificent seven,' are reaping rewards from this economic climate according to data from S&P Capital IQ.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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