Tuesday, March 23, 2010

The Small-Cap Rally

In talking about the direction of stocks we sometimes lapse into the habit of describing the market as a whole, when of course there are many different sectors and classes of stocks that behave in different ways. For example, we've noted that we recently passed the one-year anniversary of the market's bottom. The S&P 500 and Dow Jones have both done really well in the 12 months since then, gaining roughly 72 percent and 65 percent, respectively.

But the bigger winner over that same time frame has been small caps. The Russell 2000 index, which collects 2000 stocks with an average market capitalization of around $530 million, also bottomed out on March 9, 2009, at 343; it closed yesterday at 682. That's an increase of a whopping 99 percent - just about doubling in a little more than a year. The S&P 600 SmallCap Index, the S&P 500's little brother, tells a similar story - it's more than doubled, up 101 percent, since March 9 of last year.

Note that the small-caps haven't been wildly outperforming the large caps. There's been more than enough growth to go around. But it's clear that they have been the stronger asset class throughout this rally.

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