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There’s something ‘disturbing’ happening with small cap stocks, Art Cashin says


Stocks may be trekking higher, but Wall Street trading veteran Art Cashin says there are looming risks to the market that could soon shake things up.

On CNBC's "Futures Now" last week, Cashin commented on how a "counter-intuitive" trend is appearing in the market with small-cap stocks.

The IWM, the small-caps stock tracking ETF, has lost almost all of its gains year to date. That trend is one the UBS director describes as "slightly disturbing," given how small-caps were predicted to rally under President Donald Trump.

Conventional wisdom suggested that "one of the Trump initiatives would be in international trade, therefore the multinationals might be under some stress, and the small caps should be fine," he explained. "So that deterioration has bothered us somewhat."

What's more, Cashin sees two more problem areas that could soon emerge in the market.

Firstly, "people begin to realize that the Trump agenda will be far later in being implemented than people thought, that it's going to have more difficulty getting through Congress," he said. "Then the other one, which is more of a roll of the dice, is a geopolitical event."

Cashin mentioned tensions with North Korea in particular as a possible boiling point, but many market analysts also have their eyes on the upcoming French election.

With populist candidate Marine Le Pen gaining ground, all eyes are on the first round of the elections, which will take place in April and could cause volatility in the market.

Yet in addition to trouble possibly brewing across the pond, Cashin is also watching next week's Federal Reserve meeting and what a rate hike could do to yields and, and subsequently, the market.

"The Fed next week is one of the reasons that we're getting a push up under yields here in the 10-year," explained Cashin. "I think there's more watchful waiting, but if you get up around that 2.75 percent [in the 10-year note yield], I think you'll see some red lights flashing."

In other words, the UBS director believes that markets may take a tumble if the bond breakdown continues. Last week, the 10-year Treasury yield hit a 2-year highon growing expectations of a Fed rate hike.

All three major indices saw a second day of gains on Friday, led by tech and health care.

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