Seeking Alpha

Last gasp for small caps?

  • How big of a lead have small caps gained over bigger stocks? The Russell 2000 (IWM) is ahead 27.3% vs. the S&P 500's 22.1% advance YTD. Over the last 5 years, the annualized advantage is 17% to 15.1%, and in the 14 years since about the time the tech bubble burst, the Russell has gained 8.4% annualized vs. the S&P's 3.8%.
  • Future performance might be another story, according to The Leuthold Group which suggests we'e witnessing "a final gasp in small-cap leadership." Based on a number of metrics, the team estimates small stocks are trading at about a 40% premium to the S&P 500, as pricey as they've been in the "modern" era.
  • Morgan Stanley's Adam Parker, however, notes mega-cap stocks have already achieved record-high profit margins while smaller company margins are closer to their long-term average and have room to move higher. Also of note is unusually slow M&A activity - this could pick up and allow buyout premiums on the easily-digestible smaller companies.
  • Small cap ETFs: IWM, TZA, TNA, UWM, VB, IJR, SLY, RWJ, TWM, URTY, SCHA, RWM, SRTY, SAA, DWAS, VTWO, SBB, RSCO, JKJ, SDD, XSLV, FYX, VIOO, EWRS, TWOK, SMLV, PXSC
Comments (1)
  • heywally
    , contributor
    Comments (192) | Send Message
     
    Yes, the end is near for small caps. This time, for sure. More likely is that the ducks are lined up to buy serious dips unless something changes significantly.
    15 Nov 2013, 12:42 PM Reply Like
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