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.