On Small vs. Large Cap Trend Indicators

A quick note for readers following our (free) State of the Market report daily updates.

I’ve added the small vs large-cap trend-following strategy that I talked about in my post Do the Troops Lead or Follow the Generals? to the report as a long-term indicator.

Here’s a quick (frictionless) update of how this particular strategy has performed long-only on the S&P 500 index from 1989 (red) vs buy and hold (blue).

Annualized return 8.7% (vs 6.1% for B&H) with an average drawdown of -4.2% (vs -11.7%) and Sharpe Ratio of 0.72 (vs 0.33).

I’m not in love with this strategy mostly because of how little it has traded historically (meaning I’m less confidence in the results), but it’s different enough from anything else on the report that I think it’s earned a spot (albeit with a pretty small influence on the final “aggregate prediction”).

For the uninitiated, the State of the Market report is NOT one of the MarketSci proprietary strategies. The State is a daily snapshot of what some of the simple strategies that I’ve shared on this blog are predicting for the US stock market the following trading day.