Small Stocks Underperforming in the Most Recent Market Periods

Looking closely at the relative stock market performance of large and small cap stocks over the past three years provides a clear pattern—large stocks have materially outperformed their small-cap competitors. We present three time period comparisons: three-year, latest 52 week and year-to-date in 2019.

Three Year Comparison:
-S/P 500 +45.1%
-Russell 2000 +30.5%

52-Week
S/P 500 +8.7%
S/P Small Cap 600 -9.1%
Russell 1000 +8.2%
Russell 2000 (small cap) -6.9%

2019 YTD
S/P 500 +17.8%
S/P Small Cap 600 +10.4%

Russell 1000 +17.9%
Russell 2000 +14.3%

Investors have clearly indicated a preference for the larger cap universe over the recent three-year period. While the small-cap groups have recovered nicely in 2019, their performance remains below the that of the large cap group in each of the three periods shown above. There could be several reasons for this large-cap better performance. For example, the dividend yield for the S/P 500 Index is currently 1.90%, compared to 1.67% for the S/P 600. Larger companies are also thought to be better able to withstand general economic pressures and many investors anticipate a possible recession or growth slowdown in the 2020 year ahead. It is impossible to predict with any confidence when this trend may reverse itself, but the relative underperformance of the small-cap group may be opening opportunities for investors looking for oversold or undervalued companies within a specific industry. Again, when looking at stocks in a particular industry, it might be wise to focus carefully on some of the smaller market cap offerings within that particular industry.