With second-quarter earnings season underway, Bank of America-Merrill Lynch's Jill Carey Hall has a warning about a market group that has been struggling all year.
According to Hall, investors shouldn't expect small cap stocks to break out of an earnings slump.
"Consensus is still expecting small caps to remain in an earnings recession," the firm's senior U.S. equity strategist told CNBC's "Futures Now " on Tuesday. "You're really still seeing those negative revisions down the cap spectrum."
Hall, the firm's small cap expert, has been cautious on the group relative to large caps all year.
"Valuations for small caps do look relatively attractive," she said. "But at this point, we think investors should stick with larger, higher quality stocks over small."
Hall contends the decline in the ISM Manufacturing Index, which is tied closely to small caps' performance, bodes poorly for the group. She also blames the ongoing U.S.-China trade war for its struggles.
"This is one where a lot of the smaller stocks are impacted by trade and by tariffs — even if they don't have a lot of foreign exposure," she said. "Their suppliers to these big multinationals can't be as nimble to shift their supply chains."
The Russell 2000, which is composed of small caps, has been in correction territory since hitting an all-time high last August.
However, Hall sees a couple of exceptions within the troubled group.
"Two of the sectors that rank well in our small cap framework right now are real estate and utilities," Hall said. "We're still at the point where some of the more domestic or defensive sectors have tended to see better revision trends."