Small company stocks have been outperforming their larger counterparts by the widest margin for more than two decades. Behind their rise to power: investor confidence that a strong recovery and the deployment of the coronavirus vaccine will revive the economy.
As of Friday, the Russell 2000 Small Business Index had climbed 15% and set 10 closing records so far this year, well above the 4% rise in the S&P 500. That’s the most large difference of this type between the two indices until February 19 since 2000, according to Dow Jones Market Data. Small-cap stocks and the S&P 500 edged down on Monday.
The leadership of small businesses goes back even further. Over the past six months, they have beaten the S&P 500 by about 30 percentage points, with investors anticipating an increase in tax spending from the Biden administration.
Among the biggest winners: hydrogen fuel cell company Plug Power Inc., fast food chain Red Robin Gourmet Burgers Inc. and retailer Macy’s Inc. All three stocks have more than doubled in the past six months and increased by at least 35% in 2021.
Small businesses are more tied to the domestic economy than their large-cap counterparts, which earn more money overseas. Economically sensitive sectors such as energy, materials and banking also account for more of the Russell 2000 index than larger indices. These cyclical groups have been beaten by the pandemic but are now fueling markets to record highs.