Small-Cap Rally Indicates Increasing Risk Appetite

Source: Neena Mishra, Zacks Investment Research (9/5/12)

"Because small-cap stocks are generally more volatile than their large-cap counterparts, their outperformance indicates that the investors are now willing to take on more risk."

It seems that the investors are becoming bullish on the small cap stocks. Since the beginning of last month, iShares S&P Small Cap 600 Index (IJR) ETF tracking the small cap sector of the US equity market is up 6.81%, while SPDR S&P 500 (SPY), tracking the large cap sector has risen only 2.50%.

Energy, Investing, neena misra

Since the small cap stocks are generally more volatile than their large cap counterparts, their outperformance indicates that the investors are now willing to take on more risk in their portfolios. (Read: Three Best Performing Small Cap Growth ETFs)

Looking at slightly longer-term picture, these stocks (and related ETFs), had underperformed the large cap stocks earlier in the year but with the recent outperformance, IJR is up 12.25% year-to-date, only slightly behind SPY, which is up 12.95%. (Read: Three Impressive Small Cap Dividend ETFs)

Energy, Investing, neena misra

Do you think that the investors are becoming more optimistic about the economic recovery or they are becoming more confident that the Fed and the ECB will announce additional stimulus soon?

Neena Mishra
Zacks Investment Research

Announcing Streetwise Live! Events
Source: Streetwise Reports (07/13/2020)

Streetwise Reports is offering 100 investors—at no charge—the opportunity to meet via Zoom with executives of precious metals companies as they discuss recent developments at their companies and upcoming catalysts.