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U.S. Small Cap Stocks Continue To Set New Highs

James Picerno profile picture
James Picerno

The S&P 500 briefly traded in record territory yesterday before closing just below an all-time peak. Small-cap stocks, however, had no trouble setting new highs.

The Russell 2000, a widely followed small-cap benchmark, pushed further into record territory on Tuesday, August 21. The S&P 600, another popular small-cap index, also set a new all-time high.

Comparing small caps against the broad market via the S&P 500 ($SPX) this year reveals that the lower end of the equities spectrum continues to lead by a wide margin. The Russell 2000 ($RUT) is up 11.9% year to date, a hefty premium over the S&P 500's 7.1% gain so far this year. The S&P 600 ($SML) is up even more, posting a sizzling 16.9% year-to-date performance.

Will the rally continue? Positive momentum suggests there's still room to run. All three indexes are above their respective 50- and 200-day moving averages and the 50-day averages are well above their 200-day counterparts.

There's also a healthy tailwind blowing with earnings, advises Richard Turnill, BlackRock's global chief investment strategist. "Firms beating expectations have been rewarded with rising stock prices, even as investors fret about rising economic uncertainty, trade frictions and a strong U.S. dollar," he noted recently. "Our analysis of corporate guidance suggests company confidence is on the rise - giving us conviction that earnings strength can power on in 2018 amid solid global growth."

Analysts say that small caps are drawing strength from a tax cut that's juiced US economic growth this year. GDP growth accelerated to 4.1% in the second quarter, nearly double Q1's pace. The outlook for Q3 is upbeat, too. The Atlanta Fed's nowcasting model is especially bullish, projecting that output will tick even higher to 4.3% in the current quarter (as of the August 16 estimate). Now-casting.com's August 17 outlook called for a softer 3.3% rise, but

This article was written by

James Picerno profile picture
James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers. Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg Markets, Mutual Funds, Modern Maturity, Investment Advisor, Reuters, and his popular finance blog, The CapitalSpectator. Visit: The Capital Spectator (www.capitalspectator.com)

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Comments (5)

FrankEllis profile picture
Small caps always lead the large caps. The soldiers always lead the generals. This is an indication of a strong, healthy market set and ready for the next leg up in the secular Bull market. The Bull has rested in consolidation since January, catching its breath and building strength. All time new highs are now inevitable, be it today, tomorrow, next week, or next month.

Long TQQQ, TNA, and TECL.
Some Lazy Bum profile picture
I would like to return to this article in December and see how things turned out. My guess is that small caps will have done well in 2018.
I think we are approaching the top of this cycle. DOW is trying to touch the top achieved back in Feb. Housing continues to roll of 6 months in a row, yield curve near inversion 0.22% today, short term interest near top, quite market near top, debt at record high. We are trying to be greedy for this last inning of bull market. Stay invested be ready to reduce exposure to high PE stock. Small cap will hit high after high after a little more while!
Real RUT P/E ratio is 70.98 when you include companies with negative earnings. Sounds like all of the risk of small companies with none of the benefits. I’d rather pick and choose which individual companies I’m interested in that have solid fundamentals.
dlinhat profile picture
It seems to me that smaller companies are more negatively affected by big government and over regulation--not to mention the complexity of the ACA. This situation has been greatly improved since the President took office.
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