Small cap continues to outperform large cap stocks. The large cap Dow index fell -1.58% today while small cap Russell 2000 Index fell -0.23%.
This is uncommon because small cap tends to be more volatile than large cap. Small cap often falls more than large cap on a day when stocks fall.
Here are all the historical cases, and what happens next to the S&P 500 When:
Dow falls at least 1% more than Russell 2000, AND…
Both indices fall less than 3%, AND…
The S&P 500 is above its 200sma (i.e. the stock market is in an uptrend)
*We inserted the rule “Both indices fall less than 3%” because you cannot lump these cases together with cases in which e.g. Dow fell -8% and Russell fell -7%. Dow massively underperformed Russell yesterday as a multiple.
Click here to download the data in Excel.
Notice how many of these historical cases happened in the late-1990s. That’s due to the dot-com bubble. Large cap Dow frequently underperformed smaller cap indices because investors shunned “Old Economy” non-tech stocks.
If you solely look at the historical cases that happened after the dot-com bubble (i.e. after year 2000), you’ll notice that there is no consistent bullish or bearish pattern. Small cap Russell outperforming large cap Dow is neither a bullish nor bearish sign for the stock market.