Traders work the floor of the New York Stock Exchange.
The Russell 2000 index is on pace for its best month in history as a rotation in stocks from a vaccine that reopened the economy reversed the small cap benchmark to record one.
The index recorded another intraday record on Tuesday and rose 20% in November, as positive news on the vaccine front has fueled optimism about the economic recovery in 2021. The index adds momentum to its best monthly performance since its inception in 1984. , According to YCharts.
Small cap stocks are often seen as riskier investments than their large cap peers, and they trade like cyclical stocks. In an economic downturn, concerns about acute profit declines and even bankruptcies can hit particularly hard small stocks because those companies may have less developed revenue streams and credit markets than more established companies. May have less access.
In recent weeks, positive data from several vaccine trials have given hope for a strong economic recovery in 2021, leading to a spike for cyclical stocks. On 9 November, when Pfizer announced that its vaccine candidate appeared effective in its phase three tests against Kovid-19, the Small Cap Index jumped 3.7% for its best day since June.
“The overall macro background is only getting better. With people feeling a little better about the prospects for 2021, you want to own Lagards, it’s the small cap. You want stuff designed for economic growth, it’s Small cap is going to happen., “Said Steven DeActis, small and mid-cap equity strategist at Jefferies.
The lead for the small cap represents a reversal of the pattern that followed throughout the year, where Big Tech stocks sprung up, while names tied to the economy’s strength took a hit across the country as an epidemic.
“While FANGs have fared better, shares of smaller companies have come into their own. The average stock is still lagging in the market for the year, but this month broke Russell 2000 by at least one place at least. Have seen. June, “Wellington Shields technical analyst Frank Gretz said in a note to customers on Friday.
Even with a dramatic rally in November, small cap stocks still need to outperform to catch up with their larger peers. The Russell 2000 has gained 11% year to date, while the large-cap Russell 1000 is 14%. The Nasdaq measures more than 37%, measuring the 100 largest non-financial stocks in the Take-Heavy Index.
The longer the horizon, the smaller the cap underperformance is even more pronounced.
However, refueling factors in the current rally should continue to push the smaller cap more and close that gap, DeSantis said.
“There’s still more tailwind to the small cap, money is just starting to come in the group and a lot of money is coming back into equity and you get a small portion of it in the small, which obviously drives performance. . I think its going to go on. Continue to keep the performance going, “said Desenctis.
– With reporting from Maggie FitzGerald and Gina Francola