Rising bond yields drag small caps as Russell 2000 loses its year-to-date lead

U.S. small caps have fallen behind in September as bond yields rise. The Russell 2000 dropped from 20% year-to-date at the start of the month to 14%, while the S&P 500 and Nasdaq-100 reached 20% and 12%. Small caps’ correlation with the 10-year Treasury hit a one-year high above 0.97 last week. Kevin Gordon of Schwab Center for Financial Research said their sensitivity to long-end rates is twice that of large caps; IWM options showed more puts than calls on Thursday.