Small Cap

If we look only at the past eleven years, 2000-2010, the S&P 500 has decisively underperformed the Russell 2000.

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Climbing the bull market stairs. Our initial upside price target for the S&P 500 is 1300 to 1350. This is based on normalized P/E ratios moving to prior bull market average peak levels, as well as on past market peaks.

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Conventional wisdom and modern day historical evidence indicate that Value stocks do better in bear markets. But from the 1920s through the 1970s, it was Growth that held up best during bear market declines.

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NIPA earnings (National Income and Product Accounts) were revised downward significantly. Also believe that Small Cap earnings estimates are overly optimistic.

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Beginning this month, we’ll be distributing a new research publication: Leuthold’s Small Cap Groups. The core of this new publication will be a 15 factor, small cap group selection model based on our time tested, and highly successful, Group Selection (GS) methodology (with a few twists).

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Market seems to be moving toward a possible leadership transition from small/mid caps to large caps. Small caps significantly lagged large caps in July, and also now lag YTD.

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Small Cap indices performance divergence. Why has the S&P 600 significantly outperformed the Russell 2000 the past two years?

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Is “Value” back? Not certain yet, but our thematic Small Cap Value group was upgraded to Attractive this month due to big jump in GS Score.

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Many consultants and their clients have tightened the style boxes and narrowed the definitions to such a degree that it hamstrings the manager….and it’s detrimental to the client’s long term results.

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U. S. focus equity fund inflows are estimated to have risen to $20 billion in November. Also, we highlight a few of the more significant seasonal effects and point out things to look out for in the coming weeks.

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The following table compares the performance of the Russell 2000 Index (since its inception in 1979) with the S&P S00. Over this entire period, the Russell has outperformed the S&P in ten of the twenty years (S0% of the time), producing a slightly lower annual compound rate, 12.4%, versus 13.6% for the S&P 500.

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While we currently believe small cap and secondary stocks will be superior performers in the foreseeable future, we have no idea how long this phase might last. Don't pay any attention to this seven year cycle hogwash.

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In early December, we sent all clients a list of trading stocks to buy in December and sell in January.

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