Clients Ask About Small Caps After Yellen Remark: Goldman

Small cap companies have been struggling for most of this year, so when Federal Reserve chair Janet Yellen warned investors about stretched valuations last week it sent them even lower, now down 1% YTD. While value investors often see sell-offs as an opportunity to pick up some good stocks that got caught up in the mix, Goldman Sachs analyst David J. Kostin warns that the Russell 200 looks like it still has room to fall.

“Russell 2000 earnings and performance are highly levered to the US economy, which we expect to grow at an above-trend 3% pace in 2015,” writes Kostin in a report with Goldman Sachs analysts Stuart Kaiser, Amanda Sneider, and Ben Snider. “But large downward EPS...