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Daily Traders Edge

When Small Caps Finally Joined the Party

December 06
16:19 2017

While the markets have been rocking across the globe in 2017 without a hint of volatility, the current bull market hasn’t always been easy. The S&P 500 hasn’t hit the standard definition of a bear market (a drawdown of 20% or more) in many years but a number of other markets did in late-2015/early-2016. Small cap stocks in the U.S. were down almost 30% in that time. This is nothing new as small cap stocks tend to perform differently than their large cap brethren. As investors look to diversify beyond the S&P 500, it makes sense to understand how other markets generally behave. The following piece I wrote for Bloomberg gives a historical look at small caps and their cyclical nature.

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In the month after the U.S. presidential election, small-cap stocks rallied hard, gaining more than 16 percent from early November to early December. Then they went nowhere for the next nine months as the Russell 2000 Index was actually lower by the end of August than it was on Dec. 9, 2016.

After this period of consolidation, when almost every other equity market on the globe showed large gains, small-cap stocks have finally decided to join the party. They have broken out with a number of all-time highs in recent weeks. After a slow start to the year, the Russell 2000 is up more than 10 percent compared with a gain of almost 14 percent gain for the S&P 500.

Continue Reading at A Wealth of Common Sense

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