Small Stocks See Historic Gains

Small Companies Outperform as Investors Hope for Recovery

Shares of small companies are outperforming those of larger companies as investors bet that stimulus measures and COVID-19 vaccine rollout will jumpstart the US economy. Small companies are more dependent on the health of the domestic economy than their larger counterparts, which bring in more international revenue.

The Russell 2000 Index of small cap companies has surged 15% this year while the S&P 500 has seen 4% growth. This is the largest difference between the two indexes seen in more than two decades. For context, the term “small cap” refers to companies with smaller market capitalization, which is the valuation of its outstanding shares. Small cap companies generally are those with a market capitalization of $300 million to $2 billion.

Gains for Plug, Red Robin, and Others

Among the small cap companies seeing growth are hydrogen fuel-cell company Plug Power (PLUG), burger chain Red Robin (RRGB), and retailer Macy’s (M). Shares of each of these companies have climbed at least 30% in 2021 and have more than doubled over the past six months.

Over the past decade, large, international technology companies have been responsible for much of the market’s growth. But now investors are looking at smaller, domestic-focused companies which they believe will see gains in the coming months.

Additionally, investors have also been putting tens of billions of dollars into mutual funds and exchange-traded funds recently. Some of this money goes into small-cap funds like the iShares Russell 2000 ETF (IWM).

Looking Ahead

Though a number of signs point to growth for small cap companies, this is not a sure thing. Many small companies are more vulnerable to COVID-19-related restrictions. Though vaccine rollout is underway, these companies are not out of the woods yet.

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