Small Caps: A Kickoff, Not a Blowoff

For the past several months, small-caps have greatly outperformed large-caps. Many observers have derided it as a “blow off” of excess that will soon reverse, but researchers at the Leuthold Group disagree. Instead, they point out that similar periods of “extreme strength” have kicked off periods of multi-year leadership by small-caps.

The chart below, from The Leuthold Group, shows that in every one of the 7 prior instances of a 25% total-return differential between the 6‑month returns of the Russell 2000 small-cap index and the S&P 500 large-cap index, the dominance of the small-caps continued for another 2 to 10 years. Thus, they argue that the surge in small-caps is more likely to be a “Kickoff” than a “Blow off”.

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Womack Investment Advisers, Inc.

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Womack Investment Advisers, Inc. (WIA) is a registered investment adviser whose principal office is located in Oklahoma. Womack Investment Advisers, Inc. is also registered in the State of California, the State of Illinois, the State of Indiana, and the State of Texas. WIA only transacts business in states where it is properly registered, or excluded, or exempted from registration requirements.

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