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“I don’t play small. You have to go out and play with what you have. I admit I used to want to be tall. But I made it in high school, college, and now the pros. So it doesn’t matter.” – Spud Webb

Morning stock market summary

Below is a snippet of commentary from today’s Morning Lineup.  Start a two-week trial to Bespoke Premium to view the full report.  

After getting within pennies of 5,000 yesterday, will today be the day?  Futures are mixed this morning, but the changes are small on either side of the unchanged line.  The only economic data on the calendar was jobless claims, and both initial and continuing claims came in slightly lower than expected.  Like equities, treasury yields are little changed, but the bias is to the upside.  Outside of the US, international markets are biased to the upside, and Japan rallied over 2% following some dovish commentary from the BoJ deputy governor suggesting that he doesn’t see a path of continuous rate hikes.

Before the NFL Season stretched out until mid-February, the NBA All-Star game used to take place in late January to early February (it’s now been pushed out to the second half of the month with this year’s scheduled for 2/18). One of the most exciting aspects of All-Star weekend for a lot of kids was the slam dunk contest where the tallest and most athletic players would show off their skills on an undefended rim (you could argue that defense doesn’t exist for the whole weekend, but that’s another story). Depending on when you grew up, you probably remember MJ going airborne from the foul line flying through the air to the rim, and finishing it off one-handed.  For younger fans, maybe it was Zach Lavine in 2016 going through his legs while in the air.

But back on this day 38 years ago in 1986, the unlikeliest of contestants, one Spud Webb, who clocked in at 5 feet, 7 inches (generously) stunned the crowd to win. Going against players over a foot taller, including his teammate Dominique Wilkins, Webb wowed the crowd with a 360-degree midair jam to bring the trophy home.

If only small caps could get some inspiration from Spud Webb. Over the last five weeks, the Russell 2000 has underperformed the S&P 100 (largest stocks in the S&P 500) by over ten percentage points, a margin of underperformance that has only been exceeded in a few periods.  That said, it was less than two months ago that the Russell 2000 had outperformed the S&P 100 by more than ten percentage points in the prior five weeks.  Given the gyrations in performance between the two indices in the post-COVID period, there’s been a lot of indecision on the part of investors, although the bias has been to mega-caps.

From a longer-term perspective, the Russell 2000 has been in a consistent period of underperformance relative to the S&P 100 for ten years now, and the ratio of the prices of the two indices is down to its lowest level in 20 years.  As long as this period of underperformance has been, though, from the mid-1980s through 1999, small caps pretty consistently underperformed mega caps for a period of nearly 16 years.

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