Small Cap Market Snapshot
May 2024
After a rough April, small caps bounced back in May, rising 5% and outperforming large caps by 31 basis points (Russell 2000 versus Russell 1000). Small caps are up 3% YTD, but are meaningfully lagging behind large caps, which are about 10.5% higher.
Although small caps overall have not done much this year, the market has shown a willingness to selectively reward small cap stocks showing outstanding company-specific fundamental strength. One would think that should always be the case, but for the prior two years the market has been too obsessed with macro concerns (for example, the Fed tightening cycle) to hand out much small cap love.
If the market starts getting more confident in Fed rate cuts, a broader relative rally in small caps seems likely. Small cap valuations relative to large caps are in the 15th percentile. Moreover, the top 5 names in the S&P 500 are 3.59x the size of the entire Russell 2000, the highest level since the Russell 2000 was created in 1979. A catch-up trade may be in order.
Brandon M. Nelson, CFA, Calamos Senior Portfolio Manager
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