Two Year Rally for Small-Caps and Cyclicals

We’re coming up on the second anniversary of the big low from October 2011. The stock market has been red hot ever since.

The two big areas of outperformance have been cyclical stocks and small-cap stocks. Understand that small-cap indexes tend to have a strong cyclical bias. The large-cap indexes have many of the very large multinationals, while the small-cap indexes have domestic industrial companies.

You can really see the effect by looking at this chart.

big.chart09242013a

The black line is the Russell 2000 which is a small-cap index. The blue line is the Morgan Stanley Cyclical Index. The two lines follow each other very closely.

The lower two lines are the orange for the S&P 500 and red for the S&P 100. Even though the S&P 100 contains 20% as many stocks, due to price weighting, it mirrors the S&P 500 very closely.

Posted by on September 24th, 2013 at 1:28 pm


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