Small-cap stocks are once again outperforming large-cap stocks in the market so far this year, according to Bloomberg columnist Chet Currier.Through the middle of last week, according to Bloomberg data, the Standard & Poor’s 600 Smallcap Index showed a year-to-date advance of 2.9 %, including dividends, while the S&P 500 Index, mostly comprised of large stocks, struggled to a 0.4 % gain.
For the past seven years, the small-cap index climbed at an 11.5 % annual rate, while the S&P 500 Index could do not better than 1.1% a year.
There has been much talk in the industry that large-cap stocks are past due for their turn as the market leader. Money managers are “most bullish for large-cap growth, expecting the valuation imbalance to correct itself,” Russell Investment Group reported last week in its latest quarterly survey of more than 200 investment managers.
Smaller companies can succeed at innovation and adaptability, while large companies can’t do those things, no matter how hard they try.
Small stocks are not the bargains they used to be at the end of the 1990s. Based on the most recent 12 months’ earnings for the index’s component stocks, data suggests small-cap stocks trade at almost a 30% premium to big stocks. The difference shrinks to about 20% if data is used for estimated earnings for the next 12 months, which gives a small-stock price-to-earnings of 18 and a big-stock multiple of 15.
Small-cap stocks’ winning streak will most likely run out eventually, but there is no reason to think that the time will be now.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.