Taking some of the wind out of the sails of a 6-week market upturn, a wave of sell-offs in small capitalization stocks seems to have returned investors to the skittish mood they have been experiencing of late.
Banks seemed to have set the tone last Monday for small caps. Despite the fact that larger banks such as Bank of America have posted better-than-expected gains in earnings, smaller, regional banks, which operate differently than the larger, national banks, did not do nearly as well.
Adding to the already nervous mood of investors, the smaller banks traditionally depend more on real estate and construction loans whose sectors are suffering disproportionately in the current economic climate.
Because “charge-offs” are much higher than what had been anticipated, there will be a erosion in book value and reported earnings for the regional banks as a whole.
For further analysis you can read more in: ‘US Small Caps Close Lower on Slide for Regional Banks.’