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Index IDEA: US small cap stocks March ahead

After trailing US large cap stocks for the last one- and three-year periods ended March 13, US small cap stocks as measured by the Russell 2000® Index have performed in line with US large cap stocks as measured by the Russell 1000® Index year-to-date in 2018 and pulled ahead over the last month and in March, with a 5.3% month-to-date return for the Russell 2000 relative to a 2.2% return for the Russell 1000 as of March 13. This reverses a trend in which the US small cap barometer has underperformed relative to its US large cap counterpart for the one- and three-year periods ended March 13.

Alec Young, managing director, global markets research, FTSE Russell:

“Several fundamental factors are driving recent small cap alpha. First, the Russell 2000 Index constituents have a much lower 19% international revenue exposure than the Russell 1000 Index's 38%. As a result, it has been less affected by recent trade war fears. In addition, while small caps generally sport higher valuations than large cap stocks, it’s worth remembering that they have a faster growth outlook. Wall Street’s consensus 2018 earnings expectations for the Russell 2000 Index stands at 25% versus only 11% for the large cap Russell 1000 Index according to ThomsonReuters as of March 9. Lastly, small caps have tended to be better late cycle performers than large caps, which may also help explain recent outperformance.”

 

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