Small cap stocks are serving up a big warning – CNBC

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For those trying to figure out where stocks will go next, one trader has a simple message: check out the small caps.

Since the Russell 2000 index is comprised of smaller, domestically focused stocks, some traders view it as a good tell on the true state of the U.S. economy. To stock market bears, this sort of underperformance in the Russell underscores broader weakness.

“The small caps have been consistently underperforming the broader stock averages and we’re starting to see that weakness spread and pull broader averages down,” Todd Gordon said Friday on CNBC’s “Trading Nation.” The Russell 2000 index is down 5 percent year-to-date, while the S&P 500 is down less than 2 percent.

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