US small cap stocks, as measured by the Russell 2000® Index, continue to outdistance US large caps, as measured by the Russell 1000® Index. The Russell 2000 has risen 2.9% in April against a rise of 2% for the Russell 1000 Index and has similarly outperformed for the past month and year-to-date. This reverses the prior trend of small cap underperformance.
Alec Young, managing director, global markets research, FTSE Russell:
“Several fundamental factors have driven small cap alpha in 2018. First, the Russell 2000 Index constituents’ 20% international revenue exposure is much lower than large caps’ overseas sales. Being more domestic helps small caps in several ways. Not only have they been less affected by geopolitical and trade fears, they’re also more leveraged to newly enacted lower corporate tax rates and reduced Federal regulation. In addition, with Q1 earnings season off to a strong start, it’s worth remembering that small caps have a higher earnings growth outlook than large caps. Wall Street’s consensus 12-month forward earnings expectations for the Russell 2000 Index currently stand at 26% versus only 11% for the large cap Russell 1000 Index*.”
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* according to Thomson Reuters as of April 17, 2018.
Views expressed by Alec Young of FTSE Russell are as of April 19 and subject to change. These views do not necessarily reflect the opinion of FTSE Russell or the LSE Group.
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