Small Cap Stocks Post New Highs

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Small Cap Stocks Post New Highs
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Small Cap Stocks Post New Highs

One asset class has rebounded to new all-time highs — U.S. small cap stocks.
Comparison of S&P 500, Russell 2000, Emerging Markets and Int'l Developed Indices

After a bullish 2017 and hopes of a continued global equity melt up, 2018 has instead reintroduced market volatility. Despite global market volatility, U.S. small cap stocks have rebounded to new all-time highs.

Factors influencing the success of U.S. small cap stocks

So what factors has caused this success versus larger capitalization stocks?

Compared to large cap stocks, small cap stocks tend to do better in strong economic cycles. The first half of 2018 has been just that, and we expect more of the same in Q3 and Q4.

Small cap companies benefited most from the deep corporate tax cuts as most of their sales take place domestically resulting in higher tax rates when compared to their larger multinational peers.

The domestic focus of most of these smaller companies makes them less vulnerable to the ever-changing trade talks and tariffs between nations. Domestic sales generate all of their revenue and they export minimal goods. If anything, retaliatory tariffs could boost earnings of smaller companies with a domestic focus for the remainder of the year.

Targeting small cap stocks

The small cap premium is one we explicitly target in our portfolios. Given current market conditions, we see great opportunities for this asset class. Please refer to Evidence Based Investing for a more detailed look at our investment process.

Kyle Kersting

Kyle Kersting, CFA is Director of Investments at Janiczek® Wealth Management. Kyle’s experience includes expanding the firm’s Evidence Based Investing platform for high net worth investors ($2 to $20 million portfolios) and ultra-high net worth investors ($20 million+ portfolios). He graduated from Colorado State University with a Bachelor of Arts degree in Finance and Real Estate, and Regis University with a Master in Business Administration degree with a concentration in Finance.

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