Small Caps Lag as Major US Stocks Soar

The U.S. stock market presents a tale of two halves, with major indexes like the S&P 500, Dow Jones, and Nasdaq celebrating robust gains this year, while small-cap stocks are facing considerable headwinds. The Russell 2000 index, a benchmark for smaller companies, has seen a modest year-to-date increase of 6.3 percent, a stark contrast to the 12.3 percent, 8.7 percent, and 15.3 percent gains seen in the S&P 500, Dow Jones, and Nasdaq, respectively.

Historically, periods of such severe small-cap underperformance are rare, with the current situation drawing parallels to the late 1990s. Despite a decade of growth for the Russell 2000, its total return significantly trails that of the S&P 500. Year-to-date, U.S. small-cap stocks have only managed a 6 percent rise, placing them among the world's worst-performing regions, far behind the strong returns seen in South Korea, Spain, and Brazil.

Investor anxiety, fueled by high technology sector valuations, ambitious AI spending, and anticipation of the Federal Reserve's December meeting, has contributed to market volatility. Larger companies, typically more resilient to economic shocks, are less affected than smaller businesses, exacerbating the disparity in market performance.