Some stocks, like Apple and Microsoft, have large market capitalizations. Obviously, these kinds of companies are special and not every stock can have a massive valuation. There are thousands of stocks out there and many of them are quite small.
To capture these different sized stocks in aggregate, the S&P 500 is often used as a proxy for large-cap stocks and the Russell 2000 is often used for small-cap stocks. If you divide one index by the other (using IWM for the Russell 2000), you see the following:
Up until 2011, small-cap stocks outperformed large-cap stocks. However, this trend peaked and eventually reversed. Over the last six years especially and certainly since the beginning of the pandemic, large-cap stocks have done better than small-cap stocks.
Have we seen a new bottom and reversal of this long-term downtrend? It’s possible. And, recent short-term outperformance of small-cap stocks is encouraging. We won’t really know the true answer for several years most likely, when we can see the historical trend in hindsight.
Although we don’t have a perfect answer, this is still important information to keep in mind when considering overarching trends in the market while seeking to outperform the S&P 500. Outperformance for the next cycle may involve small-cap stocks as part of the solution.
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The Empire State Manufacturing Index decreased slightly but remains positive
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