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Small Caps

Nov 07 2018

P/E Crash!!

  • Nov 7, 2018

While this year’s liquidity squeeze has yet to exact the toll we ultimately expect on the U.S. stock mar-ket, it has certainly contributed to a sharp compression in P/E multiples.

Aug 07 2018

A Market Breadth Mystery

  • Aug 7, 2018

It’s difficult to knock a stock market in which Small Caps and major breadth measures are making frequent new highs, however, there are performance anomalies that suggest liquidity is no longer sufficient to “float all boats.” Recent underperformance of the Equal Weighted S&P 500 is a case in point, at the same time, the current dichotomy in market breadth pales in comparison to the 1999-2000 episode.

Jul 06 2018

Try This On For Size

  • Jul 6, 2018

Today’s market is barbelled regarding company size, with the mega-cap Tech stocks and the S&P 600 Small Cap index both outperforming the middle of the S&P 500.

Jun 01 2018

If You Think This Market’s Fishy, You’re Right

  • Jun 1, 2018

Tomorrow is the Minnesota season-opener for muskies, but the fanatics who chase them are likely disappointed that it comes a few days after an event that’s known to trigger these beasts: the full moon. The screenshot is from our $9.95 “iSolunar” iPhone app, and shows that Saturday merits only a “three fish” day (out of a possible “four fish”)—based on the moon’s fading illumination. 


May 25 2018

Breadth Is Great— Except Where It Matters The Most

  • May 25, 2018

Last week’s piece challenged the now popular view that new highs for the Russell 2000 are a decisively bullish factor for the stock market in the near term. To our surprise, we found that market returns during periods of well-defined Small Cap leadership are significantly lower than when Smalls are laggards.


May 18 2018

Is Small Cap Leadership Bullish?

  • May 18, 2018

The Russell 2000 closed above its January 26th high on Wednesday, and well beforehand bulls had seized upon the secondary stocks’ leadership as evidence that all is right again with both the U.S. economy and stock market...

Jul 08 2017

Small Caps Out Of “Phase?”

  • Jul 8, 2017

If one manipulates the data correctly, one can make the size effect—whereby Small Caps earn excess returns over the long pull—look instead like a beta effect.

May 05 2017

Leverage Factor: A Tailwind For High Quality Stocks?

  • May 5, 2017

Following 2016 underperformance, High Quality stocks eked out an advantage over Low Quality stocks to begin 2017 (+5.3% versus +2.1%, respectively). Yet, the “Junk Rally” trend seems difficult to reverse.

May 05 2017

Small Cap Seasonality

  • May 5, 2017

We’ve seen several pundits’ analyses of the “Sell In May” phenomenon of late, but none of them has addressed the most salient feature of this anomaly, which is that it’s historically been a predominantly Small Cap phenomenon.

Apr 07 2017

What’s Ailing Small Caps?

  • Apr 7, 2017

While the Russell 2000 loss during the 2015-16 correction was almost double that of the S&P 500, the decline did not fully erase the P/E premium Small Caps have enjoyed since the middle of last decade. The premium might need to be entirely erased before a multi-year Small Cap leadership cycle can begin.

Apr 07 2017

Spring Forward, Fall Back?

  • Apr 7, 2017

The S&P 500 has gained about 5% on the year, respectable but hardly consistent with the “melt up” scenario we thought might occur.

Oct 14 2016

Small Caps: Growing Into Their Valuations

  • Oct 14, 2016

Fed tapering of its QE3 asset purchase program ended two years ago this month, yet we don’t believe this episode has received appropriate recognition for the role it’s played in the relatively flat stock market environment that’s followed the onset of tapering in January 2014.

Sep 08 2016

Sizing Up Small Caps

  • Sep 8, 2016

While the most inflated domestic-valuation readings are found in the Large Cap realm, the market rebound has driven the median 12-month trailing P/E in our Small Cap universe to 22.5x (Chart 1)—less than a point away from the June 2015 all-time high of 23.3x.

Aug 05 2016

More Upside For Small Caps?

  • Aug 5, 2016

There was a major cyclical BUY signal (VLT Momentum) for the S&P 500 in late-May, and as of July’s close, that bullish development was reinforced by a new VLT BUY signal on the Russell 2000.

Jun 07 2016

Rally Extension?

  • Jun 7, 2016

We’ve boosted equity exposure twice in the past several weeks, fully cognizant that it’s not a “textbook” time to do so.

May 06 2016

Small Caps: The P/E Premium Lives On…

  • May 6, 2016

Small Cap valuations may look better on a relative price-to-book basis, but we still believe their Normalized P/E ratios will suffer further compression before Small Caps reclaim the leadership baton.

Apr 07 2016

Small Cap vs Mid Cap vs Large Cap

  • Apr 7, 2016

After spending two months in discount territory, in March the Ratio of Ratios headed closer to its historical median premium of 4%.

Jan 08 2016

Small Cap P/E Ratios: Not Yet Low Enough

  • Jan 8, 2016

When the Fed surreptitiously began to tighten as we believe (via tapering), in January 2014, history suggested that Consumer Discretionary and Small Caps would be the most likely initial market victims (at least from a relative perspective).

Nov 06 2015

Stock Market Observations

  • Nov 6, 2015

This bull market has appeared to be on shaky technical ground before, only for concerns to be swept aside. This time, we think it’s different.

Jul 08 2015

Navigating The First Rate Hike

  • Jul 8, 2015

Our current view is the lift-off will be December or later. Assuming inflation will pick up and the Fed hikes the rate by the end of 2015, stocks will perform relatively well, with international stocks a better bet than U.S. stocks.

Jan 08 2015

Small Caps: A New Ratio!

  • Jan 8, 2015

Small Caps lagged the S&P 500 by almost ten percentage points in 2014, but their underperformance streak technically dates back to April 2011. Nonetheless, their cumulative, 45-month underperformance in relation to the S&P 500 (now about –18%) is still modest enough that any mention of the current “Large Cap Leadership Cycle” is bound to draw a few head scratches.

Dec 05 2014

Can The Dollar Save Small Caps?

  • Dec 5, 2014

The dollar’s moonshot in recent months has resuscitated a stock market leadership argument we haven’t heard for a long time.

Nov 07 2014

Stocks Vs. The Dollar—More Complicated Than You Think

  • Nov 7, 2014

The recent strength in the dollar coincided with a spike in volatility and weakness in risky assets, but the relationship over the last couple years has been tenuous at best.

Oct 07 2014

Small Cap Leverage—A Concern?

  • Oct 7, 2014

With the Fed mulling over a rate increase, investors may have already started to avoid companies with excess leverage. Unfortunately, Small Caps, on average, are in this camp.

Aug 07 2014

Small Cap Premium Finally Shrinks—But Remains Historically Extreme

  • Aug 7, 2014

July’s Russell 2000 -6% rout finally deflated some of the Small Cap valuation premium we’ve been grousing about in recent years.

Jul 08 2014

Small Cap Valuation Check

  • Jul 8, 2014

Small Caps have staged a nice rebound in the last several weeks. On July 3rd, the Russell 2000 rose to within a fraction of an index point of its March 4th all-time high. But on a relative strength basis, the bounce has been pretty muted.

Apr 08 2014

U.S. Markets See Uniform Strength, While The World Seems Fractured

  • Apr 8, 2014

Based on the historical percentages, the bull market should have a minimum of four to six months of life left. But the market has a way of throwing sand in the gears when you think you’ve begun to understand its internal mechanics.

Apr 07 2014

Small/Mid/Large Caps

  • Apr 7, 2014

Small Cap Premium Bounces Back To 23%

Mar 06 2014

Small/Mid/Large Caps

  • Mar 6, 2014

Small Caps are selling at a 20% valuation premium relative to Large Caps (23% last month), using non-normalized trailing operating earnings.

Feb 07 2014

Small/Mid/Large Caps

  • Feb 7, 2014

Small Cap Premium Continues Upward To 23%. Large Caps Lead On The Downside In January

Feb 07 2014

Small Cap Update

  • Feb 7, 2014

Small Caps are close enough to a new relative strength high that it’s possible a final revision might be necessary before the Small Cap tide flows out.

Jan 08 2014

Small/Mid/Large Caps

  • Jan 8, 2014

Small Cap Premium Continues Upward To 21%. The red-hot equity market of 2013 was especially good for Small Caps with a +38.8% total return.

Jan 08 2014

Buy The Bridesmaid, Not The One Looking To Rebound

  • Jan 8, 2014

The investment leadership of a given year has historically had better-than-even odds of outperforming in the following year at both the asset class and equity sector levels.

Jan 08 2014

The 2014 Outlook: More Volatility, But Ultimately An Up Year

  • Jan 8, 2014

Gains will likely be modest, and secondary stocks could finish the year flat-to-down. The year will likely be marred by a moderate to severe mid-year correction, and Small Caps could easily suffer a 20% hit during that swoon.

Dec 06 2013

Small/Mid/Large Cap Internals

  • Dec 6, 2013

Small Caps are selling at a 20% valuation premium relative to Large Caps, using non-normalized trailing operating earnings.

Dec 06 2013

2013 Factor Performance: What Worked? What Will Keep Working?

  • Dec 6, 2013

Momentum and Value worked in 2013. Materials and Financials were the easiest sectors to exploit; Discretionary and Tech the most difficult. Momentum works in December; Value and Small Caps at the start of the year.

Nov 07 2013

Small Cap Premium Ticks Up To 16%

  • Nov 7, 2013

Small Caps are selling at a 16% valuation premium relative to Large Caps, using non-normalized trailing operating earnings. Using estimated operating earnings, Small Caps are selling at a higher valuation premium of 23% (25% last month).

Nov 07 2013

How Long Can Small Caps Lead?

  • Nov 7, 2013

The Russell 2000 is about five points ahead of Large Caps YTD, and is approaching its April 2011 long-term relative peak. We view this outperformance as their leadership’s last gasp and not a new cycle.

Oct 08 2013

Small/Mid/Large Caps - Small Cap Premium Slips To 14%

  • Oct 8, 2013

Small Caps are selling at a 14% valuation premium relative to Large Caps, using non-normalized trailing operating earnings. This is down slightly from last month, and ranks in the 91st percentile of the 1983-to-date history of this measurement.

Sep 10 2013

Small Caps Lead Year-To-Date

  • Sep 10, 2013

Large Caps lost 2.9% (total return) in August, just ahead of Small Caps (-3.2%) and Mid Caps (-3.8%). YTD, Small Caps continue to perform ahead of the other two subsets.