Based on the trends of the last several years, investors have become accustomed to seeing small cap stocks outperform large caps when the market rallies and underperform when the market trades lower. Over the last several weeks, however, investors looking to small cap stocks in search of alpha have been unsuccessful.
The chart below shows the year to date performance of the S&P 500 versus the Russell 1000. While the two indices seemed to track each other pretty closely for the first half of the year, so far in the second half they have gone their separate ways. For much of the month of July, the Russell 2000 was declining (-1.45%) while the S&P 500 rose (1.26%). While both indices are up this month, the S&P 500 is still outperforming the Russell 2000 (2.15% vs 1.78%). So far during this rally, instead of focusing on undiscovered or little followed small cap stocks, investors focusing on mega-caps like Chevron (CVX), Google (GOOG), Exxon Mobil (XOM), Apple (AAPL), General Electric (GE), and Wal-Mart (WMT) have outperformed.
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