In the past few days, there’s been significant discussion about the rotation from large-cap equities to small-cap stocks. The move has been impressive – small caps have outperformed large caps by over 10% in just six days. But is this enough to break free from the prolonged underperformance that small caps have experienced since early 2014?
Before we get too excited, let’s take a step back. The circle on the chart below highlights the historic move that has just occurred in small caps relative to large caps. When zoomed out, it doesn’t seem as substantial.
Clearing the 200-day moving average is a positive first step for a potential rotation. However, history shows that these thrusts have often been short-lived and eventually sold off.
