With the start of 2021, Wall Street has seen unprecedented growth in markets, with the broader U.S. stock markets reaching all-time highs as investors have embraced hope for an economic rebound and a swift end to the coronavirus pandemic.
However, one of the major trends emerging this year on Wall Street has been the performance of small-cap stocks relative to their large-cap counterparts. Small caps, or companies with smaller market capitalizations, have been on an absolute tear in 2021, outperforming their larger brethren by wide margins, as investors focus on stocks that have the potential for increased volatility and exponential growth.
Through February 24, 2021, the Russell 2000 Index, a benchmark for small-cap stocks, has gained 17.3%, versus a 11.1% gain for the S&P 500, a basket of large-cap stocks. The outperformance by small caps has been so extreme that some financial experts have referred to the move as “energizing.”
So why have small caps outperformed the larger companies? There are a number of factors that could be behind this phenomenon.
First, smaller companies often have more potential for growth due to their size. Smaller companies may typically be more nimble, giving them the ability to capitalize on emerging trends before their larger competitors. Additionally, there is less competition, which can also lead to outperformance in the markets.
Second, it’s possible that the recent rally in small-cap stocks can be attributed to the surge in activity among institutional investors as they search for higher returns, selecting these stocks for their portfolios. Finally, the risk-on environment that has become pervasive over the past few months could be encouraging investors to take on more risk and seek out stocks with greater rewards.
Overall, small-cap stocks have been the clear winners in 2021, and their performance is likely to continue to outpace the larger companies as investors focus on higher returns and greater volatility. Small-cap investors should pay close attention to the movements of their chosen stocks in order to best position themselves for success throughout the remainder of the year.
With the start of 2021, Wall Street has seen unprecedented growth in markets, with the broader U.S. stock markets reaching all-time highs as investors have embraced hope for an economic rebound and a swift end to the coronavirus pandemic.
However, one of the major trends emerging this year on Wall Street has been the performance of small-cap stocks relative to their large-cap counterparts. Small caps, or companies with smaller market capitalizations, have been on an absolute tear in 2021, outperforming their larger brethren by wide margins, as investors focus on stocks that have the potential for increased volatility and exponential growth.
Through February 24, 2021, the Russell 2000 Index, a benchmark for small-cap stocks, has gained 17.3%, versus a 11.1% gain for the S&P 500, a basket of large-cap stocks. The outperformance by small caps has been so extreme that some financial experts have referred to the move as “energizing.”
So why have small caps outperformed the larger companies? There are a number of factors that could be behind this phenomenon.
First, smaller companies often have more potential for growth due to their size. Smaller companies may typically be more nimble, giving them the ability to capitalize on emerging trends before their larger competitors. Additionally, there is less competition, which can also lead to outperformance in the markets.
Second, it’s possible that the recent rally in small-cap stocks can be attributed to the surge in activity among institutional investors as they search for higher returns, selecting these stocks for their portfolios. Finally, the risk-on environment that has become pervasive over the past few months could be encouraging investors to take on more risk and seek out stocks with greater rewards.
Overall, small-cap stocks have been the clear winners in 2021, and their performance is likely to continue to outpace the larger companies as investors focus on higher returns and greater volatility. Small-cap investors should pay close attention to the movements of their chosen stocks in order to best position themselves for success throughout the remainder of the year.
