The performance gap between small caps and large caps is widening to historic lows, a trend seen during times of economic stress and investor caution, possibly signaling something worse with the economy could be coming.
The small-cap benchmark Russell 2000 is in correction territory, trading nearly 14% below its 52-week intraday high in August 2018. Tthe S&P 500 is only off by 4% from its high. Something doesn’t add up.
“Large cap outperformance of small caps is reaching historic levels, and is noticeably a function of global investor caution,” Raymond James’ Tavis McCourt said in a note to clients. “This is a classic liquidity premium, and is noticeable in all recent periods of global economic fear.”