AFMC - Small Caps Leading Lower
2023-10-16 20:00:00 ET
Summary
- The economically-sensitive Russell 2000 stock index (RUT) has given back all of its early 2023 rebound and is now negative year to date.
- The US small-cap 600 index (SP600) is 20% lower than its November 1, 2021 cycle peak and 2.8% higher than five years ago.
- Small-cap indices typically lead the economy and the large-cap S&P 500 index.
The economically-sensitive Russell 2000 stock index ((RUT)) ( RTY ) has given back all of its early 2023 rebound and is now negative year to date, -29% from its cycle peak in October 2021 and just 1% higher than where it was in August 2018.
The more concentrated US small-cap 600 index ( SP600 ) (SML in green below since April 2019, courtesy of my partner Cory Venable) is 20% lower than its November 1, 2021 cycle peak and 2.8% higher than five years ago. Small-cap indices typically lead the economy and the large-cap S&P 500 index ( SPX ) (below in red).
Under the surface, 98% of S&P 500 stocks are indeed following the small-cap lead. Four hundred and ninety-three (black line below, courtesy of Apollo Global Management) are flat year to date.
Just the seven most expensive companies (Apple ( AAPL ), Microsoft ( MSFT ), Alphabet ( GOOG ) ( GOOGL ), Amazon ( AMZN ), Nvidia ( NVDA ), Tesla ( TSLA ) and Meta Platforms ( META )) have rebounded to lower highs (green line below).
It has been wisely observed that markets are most vulnerable when narrow. The much-hyped ‘magnificent seven’ presently comprise a freakish 29% of the S&P 500 market capitalization, a concentration rivalled only near the March 2000 tech-wreck top.
For those betting that last October was the low for stocks this cycle, it bears noting that the equal-weighted S&P 500 index outperformed the market-cap-weighted S&P 500 coming out of the market bottoms in 2002 and 2009, and no such lead is evident thus far. The case for capital protection looms large.
Disclosure: No positions
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Small Caps Leading Lower