Small Cap Stocks Haven't Done This Since 1933
Investors are having a tough time keeping a grasp on things. So are we, with some of the oddest, whippiest few stretches in market history.
Stock indexes have been levitating at record highs, but there is a lot of tumult under the surface. Even within solid indexes like the S&P 500, a near-record low number of stocks are managing to hang onto their medium-term trends.
Some of the rotation has been vicious. Among sectors and factors, none is more evident than between Small-Cap stocks and Growth. Over the past year, the correlation between those two factors has plunged to the lowest since 1933.
To a large extent, Growth = Technology, and we can see a similar plunge in that correlation. The rolling 1-year correlation between Small-Caps and Technology has just nosedived and is nearing its prior recent low from the end of 2017.
Looking at Small-Caps' correlation to major sectors and factors, Growth and Technology rank at the bottom of the list, both in the bottom 10% of their all-time ranges.
As for what it means for future returns, for the broader market, the answer was, "not much," but it did precede a consistent tendency for Small-Caps to do better than Technology over longer time frames.
What else we're looking at
- Full returns in the S&P 500 following a plunge in Small-Cap correlation to Technology
- What low correlations meant for future returns in Small-Caps, Tech, and the ratio between them
- Among ETFs, the good, bad, and ugly in upcoming seasonal trends
- Cyclical groups aren't confirming the S&P 500's recent highs - what to look for now
| Stat box While Small-Caps' correlation to Growth and Tech are plunging, they still have a +0.8 correlation to the Value factor (out of a scale from -1.0 to +1.0). That's their highest correlation to any sector or factor. |
Etcetera
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