Size doesn’t matter when it comes to US stocks, because investors seem to prefer small companies over big ones in 2018.
That’s a sign of the continued strength of America’s economy as small-caps tend to move earlier than later stocks whether up or down.
The Russell 2000, an index that includes shares of mostly smaller US companies, is up nearly 7% this year and is trading at an all-time high this week.
The Dow and S&P 500, both of which are home for industry giants like Apple, Disney, Coca-Cola and Boeing are up just 1% and 2% respectively. They are both still trading about 5% below their record highs.
To start, many smaller businesses in the Russell 2000 are growing their profits at a faster rate than the giants of the Dow and S&P 500.
Earnings for the Russell 2000 companies are expected to increase more than 40% this year and another 23% in 2019. That’s much better than analysts’ forecasts of a 20% jump in earnings for S&P 500 companies this year and 10% next year.
We see this continuing throughout the rest of 2018. Investors would be wise to consider smaller stocks as they tend to move higher faster when things are going well and lead the overall markets.