IS SMALL CAP STRENGTH SUSTAINABLE?
John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
Small caps are having a strong year, with the Russell 2000 Index up nearly 6% year to date, versus about 2% for the S&P 500 Index. We came into this year expecting small cap outperformance, and after a slow start in early 2018 they have delivered in recent months. Many factors have aligned to drive continued potential leadership from this group. Here we highlight three keys to our small cap outlook.
THREE KEYS TO SMALL CAP OUTLOOK
Small caps continue to look very strong from a technical point of view. The Russell 2000 Index bottomed for the calendar year on February 8, 2018, and it has gained more than 11% since then, nearly doubling the return on the S&P 500 over this period. As Figure 1 shows, the February lows took place right at support on an upward sloping trend line. This successful retest of a previous resistance line is exactly what we wanted to see, and the subsequent acceleration higher bodes well for continued strength from small caps...