The year-to-date returns among small and large cap stocks were
pretty much the same through June. In fact, as late as June 26, the
Dow Jones Industrial Average (which I'll use as a large cap proxy)
the Russell 2000 (small cap proxy) by a small margin.
But small cap stocks have been on fire lately. Since June 26,
the Russell 2000 has surged an additional 15.4% while the Dow has
only inched up 3.2%, as of the close on October 21. Year-to-date,
the Russell 2000 is now up 31.0% versus the Dow Jones' 17.5%
You can see the remarkable break away in small caps in this
This looks like typical "risk on" behavior, where investors
rotate out of relatively "boring" and "safe" stocks (like many of
the blue chips in the Dow) and into higher beta, higher growth
stocks (like many in the Russell 2000). But a "risk on" shift is
usually sparked by some sort of catalyst. My question is this:
What do you think is the catalyst behind this move?
Have large systemic risks mitigated since late June? Are
investors suddenly expecting a positive turn in our Muddle Through
economy? Or is it something else?
Perhaps more importantly:
do you think the recent outperformance of small cap stocks will
continue throughout the rest of the year? Or will they cool off as
investors shift back into safer stocks?
Chime in below and join the conversation!
SPDR-DJ IND AVG (DIA): ETF Research Reports
NASDAQ-100 SHRS (QQQ): ETF Research Reports
SPDR-SP 500 TR (SPY): ETF Research Reports
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