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Home / Business / The Dow and the S & P 500 have not been so heavily influenced by small caps since 2016

The Dow and the S & P 500 have not been so heavily influenced by small caps since 2016



What a comeback! Small cap stocks, as measured by the Russell 2000 index, have clearly outperformed the Dow Jones Industrial Average and the S & P 500 index this week, after being hit by their large capitalization brothers, highlighting a shift in investor bets in the last several sessions.

The Russell 2000 Index

RUT, + 2.12%

has so far gained 4.6% this week and was able to post gains of at least 1% in three consecutive sessions that took place for the first time since January 201

9 Dow Jones Market Data.

To further determine the rise for small caps, Russell's weekly gain, which represents a difference of 3.81 percentage points between its recent run-up this week and the S & P 500

SPX, + 0.72% ,

On a weekly basis, this would be the largest underperformance between the large cap index and the Russell index since 11 November 2016.

Read : MarketWatch's snapshot of the market

Russell's weekly earnings also put the index on the best outperformance against the Dow for about three years

DJIA, + 0.85% ,

The Nasdaq Composite Index was 3.35 percentage points lower each week than the small cap benchmark

COMP, + 1.06% ,

This increase was 3.76 percentage points behind the Russell this week.

The increase was recent, as shown in this 30-day FactSet chart. It shows the Russell in dark blue and the Dow in green and the S & P 500 in pink: [19659011] Russell's recent rise has propelled him up the Dow. The small-cap index rose 16.44%, while the blue-chip benchmark rose 15.89% on Wednesday afternoon. The Russell index, however, underperformed the year-to-date gains of the benchmark S & P 500, which gained 19.34% in 2019 and 22.75% in the Nasdaq.

A closer look at the small-cap index shows that it remains more than 10% off its all-time high reached on August 31, 2018. The Russell was largely beaten last year, sometimes leading his large-cap competitors and falling sharply at other times

The Dow, the S & P 500 and the Nasdaq have already set new records this year and are worried about the impact of a continuing trade dispute between the US and China and about the possible damage that could be caused by a recession in the US is at least within 2% to reach new historic highs.

The turnaround in small caps is evident as Wall Street strategists highlighted a recent shift characterized by investors turning away from defensive stocks and momentum stocks into cyclical stocks and titles. Small caps on a turn signing could be confident in future economic growth.

So-called momentum strategies target investments that have outperformed and are therefore believed to continue to deliver excess returns. Momentum betting has outperformed value investment strategies over the past decade, focusing on stocks that are partially undervalued. However, momentum remains well behind the small caps, and these bets have recently been considered valuable.

In fact, it is a popular exchange-traded fund, the iShares Edge MSCI US Momentum Factor ETF

MTUM, + 0.44% ,

has so far gained 19.14% in 2019 but has dropped 2.91% this week and 0.6% in the last 30 days, while the popular Vanguard Value ETF value product

VTV, + 0.76%

gained 1.8% during the week and 3.2% this month.

Technical analyst Jeff deGraaf said in a research report on Wednesday that a shift in momentum investment may have been "over-obsessed" and therefore shifted to other market areas: "All this because the momentum was over-obsessed." DeGraaf, the strategist of Renaissance Macro Research, says the market has mainly dealt with the question of whether worries about a slowdown are overdue, but implies that the data is not "the current bullish environment in which momentum stocks




"We call this the 'disbelieving progress', the point at which the market message is stronger than the headlines or the consensus," he wrote.

Read: Stock market investors' appetite for "bond proxies" drops


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