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Small Caps Join The New-Highs Party

Small Caps Join The New-Highs Party

November 16, 2020
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It took more than two years, but small caps finally broke out to new highs, as the Russell 2000 Index on Friday closed at its first new high since August 31, 2018.

This capped off one of the longest stretches ever without a new high.

View enlarged chart.

“We’ve seen large cap strength for years, but it is great to finally see the little guys join the party,” explained LPL Financial Chief Market Strategist Ryan Detrick. “Don’t forget there are many more small cap than large cap names, so this is yet another sign that overall market breadth and participation is improving.”

As shown in the LPL Chart of the Day, when the Russell 2000 has gone more than one full year without a new high, the future returns going out a year have been quite strong, suggesting the recent strength could have plenty of legs.

View enlarged chart.

Small caps are more domestic by nature, and seeing small caps significantly outperform their large cap brothers the past few months could be another clue that the US economy may improve next year—maybe more than what most economists expect.

We recently upgraded our view on small caps, and you can read more in Three Reasons We Like Small Caps.

 

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