Small cap stocks staged a furious rally to kick off 2019, with the Russell 2000 Index up nearly 18% year to date at the early March peak. Of course, you may remember that small caps were down much more than large caps at the end of 2018, as the Russell 2000 lost 20.5% in the fourth quarter for the worst quarterly decline since the U.S. debt downgrade in the third quarter of 2011.
What do we see now? “It looks like the outperformance in small caps could be ending and large caps could be about to take the baton and begin to lead,” explained Senior Market Strategist Ryan Detrick.
As our LPL Chart of the Day shows, the Russell 2000 recently was rejected right at its 200-day moving average (MA). This long-term trend line provided support for multiple years, and it is now acting as resistance. The relative strength chart (lower pane of Fig 1) of the Russell 2000 versus the S&P 500 Index shows this trend line also ran into resistance at similar areas of resistance late last year. And note: If this ratio trends lower, it means that small caps are underperforming large caps, and we do see this recent trend continuing.
For more on our thoughts on large caps versus small caps, be sure to read out latest Weekly Market Commentary due out later today.
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