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Weekly Small Cap Market Review: January 22 – January 26

By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)

The Big Game (since ‘Super Bowl’ is a trademark of the NFL, only NFL-licensed companies and the media can use the term – you will now see and hear the difference everywhere) is this weekend. Since I’m particularly unhappy with the two teams playing the game (I am a NY sports fan, so I was bred to dislike both Boston AND Philadelphia teams, and I had to watch my adopted Falcons lose in disappointing fashion again), that means it’s time for prop pools!

If you only watch the game to, you know, watch the game, you’re missing out on a key part of the Super Bowl experience. Prop (short for ‘proposition’) pools are collections of side bets which are based on outcomes that do not directly affect the game’s final result. The most famous example is whether the national anthem will be over or under a certain time. I’m clearly not the only one interested in something so esoteric. The singer is Pink this year, and if I search for “Pink National Anthem Length,” I get 630,000 hits on Google, including around 15,000 news articles. With the line set at 2 minutes (the average over the last 12 years has been 2 seconds shy of that at 118 seconds), the over is favored. Other great bets:

  • Whether M&Ms, Pringles, or Toyota will have the first advertisement
  • Whether Justin Timberlake will cover a Prince song (would pay 2/1 if he does)
  • The number of tweets the President will send during the game (0-2 vs. 3+)
  • And the classic – whether the coin flip will be heads or tails (it’s 27-24 tails so far)

On another note, I will be attending the TD Ameritrade LINC Conference in Orlando on Thursday and Friday of this week. If you are around, I will be at the AdvisorShares booth (#505) and am always happy to discuss small cap stocks, Pink’s national anthem history, or anything else that seems interesting at the moment.

The small cap market, as defined by the Russell 2000 Index, was up 0.7% overall during the week. Health Care (+4.9%), Telecommunication Services (+1.8%), and Utilities (+1.1%) were relative outperformers in the Index. Financials (-1.0%), Energy (-0.4%), and Information Technology (-0.3%) were the weakest. On a style basis, small caps underperformed large caps, as the Russell 1000 Index was up 2.1%. Among small caps, growth outperformed value, as the Russell 2000 Growth Index returned approximately 160bp more than the Russell 2000 Value Index.

The macro sentiment remained on the positive side, with the market melt-up driving small caps up for the week on strong expectations for domestic and global growth. Specifically, health care was supported by M&A and strong earnings read-throughs, with biotech a particular standout. Telecom and utilities held up as more dovish perspectives from the Japan and Europe were discussed, as well as willingness by the Trump administration to keep a weak dollar. In contrast, the flattening yield curve impacted the financials negatively. Small cap underperformance versus large caps may even out over time as the impact from taxes starts to flow through estimates when companies report.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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