Smaller Stocks Hold the Leadership Position So Far This Year

Chart of the Week for October 27-November 2, 2000

The market favors smaller stocks so far this year, with the S&P MidCap 400 Index and the S&P SmallCap 600 Index returning 11.3% and 3.4%, respectively. Larger stocks are struggling in negative territory for the same period, with the S&P 500 Index declining 7.1%. The dominance is evident at both the value and growth components of these indexes.

However, this doesn’t mean that larger stocks should be ignored. A well-diversified portfolio includes stocks from all market caps. Moreover, as is often the case, an index may be down while several stocks in that index have enormous returns. This is the case for the S&P 500 Index (please see last week’s Chart of the Week).

The chart puts in evidence another important point. While value stocks are on the rebound, especially as the economy slows, good opportunities exist in both value and growth stocks. The growth component is leading at the mid-cap level with a 14.4% year-to-date return, while the value subset holds the leadership position at the small-cap level with a 3.5% return.

A sound, long-term investment strategy should avoid a concentration of resources in any particular sector or market segment.

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