Small-cap Stocks.- Small-cap investors refused to take a backseat on Tuesday while the broader U.S. stock market appeared dormant.
The small-cap Russell 2000 index, comprising the smallest 2,000 companies based on market capitalization within the broader Russell 3000, surged by 2.6%, heading towards its highest closing level since March 8, according to data from Dow Jones Market Data.
Thus far in 2023, small-cap stocks have lagged behind, registering a modest gain of only 5.2% compared to the 11.4% surge in the large-cap benchmark S&P 500 and the 26.6% jump in the tech-heavy Nasdaq Composite. Both large-cap indices owe their gains to the soaring performance of mega-cap tech stocks this year.
Louis Navellier, the founder of Navellier & Associates, highlighted that the top eight mega-cap tech stocks now command nearly 28% of the market-cap-weighted S&P 500 and almost 55% of the tech-focused Nasdaq-100.
However, on Tuesday, small-caps were rewriting the narrative.
The Russell 2000 outperformed the S&P 500 by a notable margin of more than 2.3 percentage points, marking the largest gap since November 1, 2021. While the Dow experienced a decline of around 50 points or 0.2%, the Russell 2000 rallied by 2.5%.
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Navellier shared his insights via email, stating, “The expectation is that either the small-cap stocks in the Russell 2000 and microcap indices will ‘catch up’ or the eight big mega-cap technology stocks will ‘crash and burn’.” He further expressed optimism about the overall stock market’s breadth and power improving in the coming months, as the ChatGPT and AI craze boosts certain companies while others face growing competition.
Meanwhile, the more cyclical Dow Jones Industrial Average has trailed behind the Russell 2000, with a meager 1.1% gain so far this year.
According to Dow Jones Market Data, the last occurrence of the Russell 2000 surging by more than 2.5% while the Dow finished lower was on October 10, 2008.