Small Cap Stocks Steadily Keep Climbing

Small Caps Have Climbed Since Late October

Since March 23, when the stock market bottomed out on fears about the emerging coronavirus pandemic, the small cap Russell 2000 has more than doubled, outpacing the Nasdaq and the S&P 500. The Russell 2000, home of the 1,000th to 3,000th largest stocks on the market, has grown by around 114%. The Nasdaq and S&P 500 have risen around 90% and 65% during the same period, respectively.

The remarkable small cap growth suggests that as Wall Street anticipates more economic stimulus from the government, an accelerated vaccine rollout, and faster growth, small caps are the most recent “pandemic winners” on the market. That small cap growth has only gotten stronger in recent months as the Russell 2000 has outpaced the Nasdaq and S&P 500 by more than 20 percentage points since last November.

Why Small Caps Benefit from Domestic Growth

Many expect that the US economy is on its way to a period of growth as a result of infrastructure bills and fiscal stimulus. If the pandemic becomes more controlled, this should also lead to economic growth. If these predictions come true, small caps, like those in the Russell 2000, are likely to benefit.

Compared to the S&P 500 and other indexes composed of larger companies, the success of the Russell 2000 is much more closely tied to the health of the US economy. More than three-quarters of Russell 2000 members’ revenue comes from the United States. By contrast, members of the S&P 500 get less than two-thirds of their total revenue from the United States.

Analysts Forecast Strong Small Cap Performance

Many analysts are hopeful that the Biden administration’s policies will help small cap stocks continue their rally. “The market is going to believe that [Biden] is going to try to do everything in his power, both from a financial point of view and also from a regulatory point of view, too, to make things much easier for small caps as we go forward,” Boris Schlossberg, Managing Director of FX strategy at BK Asset Management, said earlier this week.

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