Always keep in mind that one million times zero equals zero.
- Manlobbi
Halls of Shrewd'm / US Policy❤
No. of Recommendations: 8
from WSJ:
In the 2000-2002 bear market very small stocks went up 1% while big stocks fell 37%. (The 2008 crash didn't shows that big a difference).
Right now big stocks are valued at 4 times the book value of small caps.
Nvdia is worth more than the entire Russell2000 right now.
Their point: can this continue? Shouldn't nimble, creative small caps start to improve more?
No idea! Last 10 year run of big caps was driven by their greater growth in earnings.
No. of Recommendations: 3
This month IWM is up 3% while SPY is up 1.5%. But the last 6 months have been awful for small caps. Maybe we're already at a turning point.
Elan
No. of Recommendations: 7
For what it may be worth, a look at some intermediate- and short-term market breadth conditions for US small caps:
Intermediate-Term SmallCaps Since
INT-TERM SCORE -1
BearCatcher Naz NH/NL -
BearCatcher SMA Slope Neutral 5/30/25
BearCatcher 99D Bear 7/10/25
Momentum, Int 26W / 52W Bull 6/26/25
Momentum, Int # 26 week highs Neutral 7/10/25
Momentum, Int DMI Neutral 5/23/24
Momentum, Int-Term 10/50 Crossover Neutral 5/12/25
Momentum, Int PPO Weekly Bull 6/27
Correction Mode >7% off last peak Bear 7/10/25
Timing, Seasonal MACD on RUT Bear 5/23/25
Danger Indicator Bear 7/18
Momentum, ST PPO Daily Bear 7/18/25
Breadth, short term SP600 PAMA20 Neutral 7/18/25
Top warning Recent Simple Top (10d) Neutral
# 26week Highs last 10d Neutral
Breadth, short term SPSC Above 20DMA gtsml Neutral
Although small caps have somewhat recovered since the April Demolition Day, the index hasn't recovered its earlier 2025 high (as large cap / lc tech have) and hasn't rebounded as strongly as those.
Compared to large cap tech and general large caps which are both at +8 (solid bullish).
On a GTAA ranking basis, Small Caps (IJR) remain #12 out of 14 classes I track. It crossed its 33W moving average only at July 3rd, by a long shot the last equity asset class to get back above it, and partially because that intermediate term moving average continues to decline.
No. of Recommendations: 27
There is perhaps a case to be made that the answer might be "never". At least, not a reversion back to the old trend.
The observation underlying that is that small companies are very much worse quality than they used to be. Decent and half-decent ones get acquired, and only the dregs stay (or go) public.
Consider:
The average level of profitability among small caps is much lower than it used to be. Almost a third of R2000 companies are unprofitable, compared to 5% twenty years ago. In the 1990s, small caps routinely delivered returns on invested capital in the teens. Today, the index ROIC is in the 3-4% range. Some of that is due to more early-stage health/biotech companies as a fraction of the set, but that's a minor effect.
The average level of debt is very much higher and tends to be at floating rates unlike the large cap cousins. Excluding the tech bubble years, average net debt to earnings used to be 2 times, now it's over 3 times.
Jim
No. of Recommendations: 1
Wow...thank you Jim. That was some good info.
No. of Recommendations: 3
Almost a third of R2000 companies are unprofitable,
I'm guessing that taking only from the top 1/4 or 1/2 by market cap and also positive ROE would take care of that.
No. of Recommendations: 8
I'm guessing that taking only from the top 1/4 or 1/2 by market cap and also positive ROE would take care of that.
Makes sense. I am certain there are plenty of decent firms in there.
I see three main issues regarding jumping heavily into the small end:
* The companies are not so hot any more on average, as mentioned. Judicious selection should help that.
* The construction of the Russell 2000 index is hazardous to your health, don't invest in it, at least not any time near the middle of the year. It is FAR too easy to front run the reconstitution, and the drag has been estimated to be huge, around 2.2%/year. Judicious selection should avoid that problem.
* Valuation levels no longer seem to get a break. Judicious selection might not help. There are LOTS of people looking for growing firms about to rise up into the R1000 or S&P500, so they tend to get bid up enough that you you have to be better than the pack at picking the winners of the race. The ones that aren't on that trajectory are slower growing and likely to remain at second-tier valuation levels.
Jim
No. of Recommendations: 1
am curious if retail that avoids american smallcaps have ~ 90-100% overlap with those avoiding foreign.
in which case, smallcap foreign funds do not really stray further from flows and momentum factors.
No. of Recommendations: 6
Marquette Associates has a report on why the rise of private equity has impacted the performance of small-cap stocks and indices like the Russell 2000. Small companies stay private longer, growing bigger and reducing the small-cap premium.
https://www.marquetteassociates.com/private-equity...DB2
No. of Recommendations: 1
agree this also throttle flows.
but there is no sign that net quality of private smallcap is better.
and verdad argues it is likely worse as many of these are too risky for modern bank loan standards.
the very few private smalls that survive and grow quickly will get 99% of the publicity, as usual.
No. of Recommendations: 3
the very few private smalls that survive and grow quickly will get 99% of the publicity, as usual.
The whole question might be moot soon enough. There were 8090 US public companies in 1996. Last year it was down to 4010. If 1000 are mid and large caps, then the number of small caps has already dropped by 58%. In that light, it's a little less surprising that there are fewer stars to be found...there are fewer duds, too.
Jim
No. of Recommendations: 5
Jim wrote:
There were 8090 US public companies in 1996. Last year it was down to 4010.Although I agree with your point I was curious about your numbers. This is my average counts per year from 1985 to present using GTR1 data.
I wonder what is causing the difference. Where are you obtaining your data?
OCO = Operating Companies Only
US Total OCO US Total OCO
Year Issues Issues Year Issues Issues
1985 5542 5074 2005 5843 4345
1986 5687 5220 2006 5864 4289
1987 6040 5496 2007 5897 4218
1988 5897 5299 2008 5908 4106
1989 5663 5036 2009 6048 3893
1990 5644 4985 2010 5872 3708
1991 5527 4853 2011 6197 3654
1992 6016 5230 2012 6035 3474
1993 6444 5505 2013 5776 3299
1994 7171 6043 2014 6385 3526
1995 7466 6255 2015 6790 3656
1996 7973 6662 2016 6876 3599
1997 8321 6905 2017 6849 3533
1998 8198 6717 2018 6941 3512
1999 7734 6264 2019 7133 3558
2000 7512 6016 2020 7220 3519
2001 6935 5452 2021 8085 3785
2002 6403 4945 2022 8864 4013
2003 5979 4564 2023 7636 3425
2004 5849 4407 2024 8664 3825
2025 8856 3701
No. of Recommendations: 4
Although I agree with your point I was curious about your numbers. ... Where are you obtaining your data?Since my own database didn't go back more than about 20 years and the trend is older, I just grabbed the numbers from a web site, in this case the World Bank, apparently using data from the World Federation of Exchanges database. I wasn't worried about precision, as the trend is well known : )
https://data.worldbank.org/indicator/CM.MKT.LDOM.N...According to the World Bank page, there are now more listings in Canada than in the US, which sounds odd. One has to wonder what counts as a listing.
Jim
