Key Takeways
- Small- and mid-cap stocks are gaining relative strength while large- and mega-cap companies move towards lagging territory.
- Technology and energy are weakening, while financials, industrials and consumer sectors show improving momentum.
- Historical Russell 2000 performance during US midterm election years offers another perspective on potential small-cap opportunities.
Could smaller companies be preparing to take the lead on Wall Street?
In the November 12 edition of Markets in Motion, Bruce Campbell of StoneCastle Investment Management examines a shift in US stock market leadership, with small- and mid-cap stocks gaining momentum as mega-cap companies and technology stocks lose relative strength.
Campbell’s sector analysis shows technology approaching the lagging quadrant and energy rotating towards weakening. Financials, meanwhile, are moving closer to the leading quadrant, while consumer discretionary, consumer staples, utilities and industrials are showing improving momentum.
This article is being disseminated on behalf of StoneCastle Investment Management, a third-party issuer, and is intended for informational purposes only.
The shift extends beyond individual sectors. Growth stocks are weakening relative to value, while large- and mega-cap companies are moving towards lagging territory. Small- and mid-cap stocks, by contrast, are performing more strongly on Campbell’s relative-momentum charts.
That broadening market participation could be significant for investors who have watched a relatively narrow group of large technology companies dominate market leadership.
Campbell also highlights historical Russell 2000 returns during US midterm election years, using data from MoneyFlows. The chart shows a pattern of negative returns between May and October, followed by positive returns in the subsequent period.
Although past performance cannot predict future results, the historical pattern adds another dimension to the improving relative strength of smaller companies.
North of the border, Canadian equities are experiencing a similar rotation, although technology remains in the leading quadrant on the TSX.
Watch the full episode above and join the discussion on iHub. Could small-cap stocks become the next market leaders, or will mega-cap technology regain its momentum?