The dwindling presence of small-cap stocks in the US market raises concerns reminiscent of the Great Depression.

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The dwindling presence of small-cap stocks in the US equity market is ringing alarm bells reminiscent of the Great Depression era. Currently, these stocks represent less than 4% of the entire market, a figure not seen since the 1930s.

As the hype around AI technology continues to grow, small-cap stocks find themselves lagging behind their larger counterparts. The Russell 2000 index, a key benchmark for small-cap stocks, paints a grim picture with over one-third of its constituents reporting negative earnings, a notable increase from previous years.

This downtrend has left small-cap stocks in a precarious position, with sentiment towards them souring among investors. The concentration of the market, reminiscent of the lead-up to the Great Depression, coupled with the Federal Reserve’s tightening of the global Dollar supply, raises concerns about the stability of the financial system.

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The parallels to the events of the 1929 market crash are hard to ignore. Back then, the Federal Reserve deliberately restricted the Dollar supply for years, leading to significant market upheaval. Are we witnessing a similar scenario unfold today?

As small-cap stocks face increasing headwinds and market concentration reaches historic levels, investors are left to ponder whether these trends are harbingers of impending market trouble. The lessons from history serve as a stark reminder of the importance of vigilance in the face of market uncertainties.

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