One of the main themes of 2019 has been the outperformance of small-cap stocks relative to large-caps. As with all trends, though, nothing goes in a straight line. That’s what we have seen over the last several trading days as small-cap stocks have started to pull back to a greater degree than their larger cap peers. In this morning’s update of major index ETFs in our Trend Analyzer you can see this as the smaller cap ETFs have all seen the largest declines over the last five trading days while the large caps have eked out some gains.
Another way to highlight this trend is to look at the relative strength of the market cap weighted S&P 500 versus its equal-weighted counterpart. From the opening bell of 2019, the equal-weight S&P 500 saw steady outperformance relative to the market cap weighting index indicating that the smaller market cap companies in the S&P were seeing bigger gains than their larger peers. More recently, though, we have seen a pause in that trend, and since 2/20 the market cap weighted index has been steadily outperforming. In fact, in the ten trading days through the close on 3/5, the market cap weighted S&P 500 was up 0.18 while the equal-weighted index was actually down over half of a percent.
To illustrate this another way, the chart below breaks up the S&P 500 into deciles based on market cap and shows the average performance of each decile from the close on 2/20 through 3/5. Of the ten deciles, the only one that has seen positive returns is the decile of the largest stocks (market caps of ~$100 billion or more). Every other decile is down over that period, and the decile that has seen the weakest returns over that period is the decile of stocks with the smallest market caps! Even more noteworthy perhaps is the fact that while 60% of the stocks in the decile with the largest market cap are up during that period, more than 60% of the stocks in the decile with the smallest stocks are down! It’s also not just that investors have plowed into large-cap stocks during this period. They’ve been going for the mega caps. Of the ten largest stocks in the S&P 500, the average gain during this period has been +2.3% and eight of them are up with Berkshire Hathaway (BRK/b) and JP Morgan Chase (JPM) the only decliners. The “MAGA” stocks of Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Apple (AAPL) have all rallied more than 2%.