Small caps have been serial underperformers versus the large-cap S&P 500 over the last 12+ months, but they’re having their day in the sun this week.  Not only has the small-cap Russell 2,000 risen more than 1% for three consecutive trading days to start the week, but the index has also outperformed the S&P 500 by more than one percentage point on each of the last three days.

If this is the start of a longer-term small cap resurgence, there is certainly a lot of runway left.  Below is a chart of the ratio between the S&P 500 and the Russell 2,000 over the last 15 years.  When the line is rising, the S&P is outperforming the Russell.  When the line is falling, the Russell is outperforming the S&P.

As you can see in the chart, the S&P has been outperforming the Russell for the last year, and the ratio got extended to the very top of its 15-year range at the start of September.  Since peaking earlier this month, however, the ratio has fallen dramatically as small caps have started to outperform.  Even after the recent small-cap outperformance, the ratio remains well above its long-term average.  Start a two-week free trial to Bespoke Premium for our most actionable investment ideas.

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