Pro Perspectives 11/4/19

November 4, 2019

We have what looks like a melt-up brewing into the year end. 

And given that this is a bull market with plenty of non-believers, expect institutional investors to start pouring into higher beta stocks, as they scramble to get find some extra return.

If we look across the broad index returns, the S&P 500 is now up about 23%.  That’s almost three-times the long run annualized return on the broad market.  It’s no surprise this index is leading the way globally, given the S&P 500 is the proxy for global stability and risk appetite.

Meanwhile, the Russell 2000 (small caps) is trailing, up 18%.  Let’s take a look at the chart …

While we’re running to new record highs in the blue-chip stocks, small cap stocks are still 8% off of the highs of August of last year.  But as you can see in the chart above, we have this series of highs in the index that are being tested. It looks like a breakout is coming.     

If look back at the July Fed meeting, where they officially flipped directions on the policy path (from tightening to easing), value stocks have been the clear leaders — far superior to growth stocks.  And small cap value has trailed large cap value.  With the technical setup above, and the need for managers to “catch-up” that performance gap might close quickly.