The S&P 500 index of large-cap stocks is up 14 percent year to date, and has been climbing the entire year, supported by solid earnings growth. The small-cap Russell 2000 index is up just 11 percent year to date - but it's catching up to the big boys.
More than half of that gain, or 6 percent, came in September. The small-cap index rose even as earnings picture for the sector deteriorated, with analysts penciling in a decline in earnings for the third quarter. What is most surprising, though, is what kind of smaller companies have rallied so far this year - primarily those of lower quality.
According to WisdomTree, the Russell 2000’s non-dividend payers returned 18.7 percent year-to-date. Shares of companies with negative earnings returned 21.7 percent, and the companies in the lowest return-on-equity quartile returned 22.7 percent - twice the return of the underlying index.
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