Time to Rethink Small Caps?

The Russell 2000 and small caps may look tempting because they've lagged way behind the S&P 500 behind this year, but many analysts believe they are still overvalued.


On Wall Street

December 18, 2014


By Robert Stowe England

After seeing paltry returns for most of 2014, advisors might wonder if it is time for U.S small-cap stocks to shine again. After all, if they compare the performance of the Russell 2000 with the S&P 500, small caps have a fairly long history of outperforming large caps.

But many strategists and analysts think small caps are a long way from reclaiming their role as market leaders. "Even with small caps lagging, the valuations in our view are still well above long-term averages," says Kate Warne, investment strategist at Edward Jones in St. Louis. "We are recommending investors reduce their holdings of small-cap stocks."

The numbers show that small caps struggled for most of 2014. The Russell 2000 gained only 0.96% as of Dec. 17, 2014, while the S&P 500 was up 8.90%. In 2013, by contrast, the Russell 2000 zoomed ahead by 28.99% while the S&P 500 rose 23.38%.

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Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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