LIVE MARKETS-Jefferies cuts Russell 2000 yr-end 2025 target to 2,200

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JEFFERIES CUTS RUSSELL 2000 YR-END 2025 TARGET TO 2,200

As small caps continue to underperform their large cap brethren, Steven DeSanctis, small and mid-cap equity strategist at Jefferies Financial Group, has cut the firm's year-end Russell 2000 .RUT price target to 2,200 from 2,715, a cut of about 19%.

In a note to clients, DeSanctis said the new target "reflects reality" that the U.S. could be heading into recession, "if it isn't already there", but the new target reflects a bounce of around 16% from current levels (~1,890).

While the firm itself sees a recession this year as unlikely, they are forecasting growth slowing, with GDP below 2% for the year.

As such, DeSanctis also cut his earnings growth forecast to 4% from 13%, noting that "when GDP has been below 2%, small-cap earnings have fallen on average by 2.8% with revenue growth at 2.2%."

The carnage across the small cap universe has been wide, according to DeSanctis, with over 1,900 stocks in negative territory and the average stock off 25.7% since the November 25 record high.

However, there are some positive signs, as the CBOE Volatility index .VIX has dipped back below 30 after topping 60 last week, and small caps tend to rally after the 40 threshold is breached.

In addition, the smallest names have been hit the hardest and when small caps bounce, this area leads the way higher, and the group saw ETF flows turn up last week, which provides a boost.

(Chuck Mikolajczak)

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