Is It Time For Small-Cap Stocks To Shine?

As noted last week, small-cap stocks began to outperform after the jobs report on June 2 was mixed enough to allow the Federal Reserve to refrain from raising short-term interest rates this week. Through the end of May, small-cap stocks, as measured by the Russell 2000, were down fractionally for the year, while the S&P 500 was up close to 10%. Since June began, the Russell 2000 rose 6.6% versus the S&P 500 at 2.9%.

The relative valuation of small company stocks supports continued outperformance versus large-cap stocks. Small-cap stocks sell for 14.4 times 2023 estimated earnings, while the S&P 500 is 19.5 times. The valuation gap is near the largest since the dot com bubble.