Small caps are out of favor right now. I'm not sure why but the strength/weakness of
the dollar may influence it. The dollar index peaked in May when the Russell 2000
peaked. The Russell 2000 strength compared to the S&P 500 seems to roughly track
the dollar index. The other day the dollar had fallen all the way down to long term
support.
Skimming the chat boards, people seem to think it's only their particular small cap
stock that is in the doldrums. Any small cap which has management perceived as
making mistakes is crushed into a small fraction of what it traded at last Spring.
The Russell 2000 is an index of domestic stocks traded on the NASDAQ, AMEX,
and NYSE that is composed of the smallest 2,000 of the largest 3,000 companies by
capitalization. If we let that define a "small cap index" (a capitalization which is
probably way, way bigger than GRNO) and compare that with the Standard and Poor's
500 industrials including dividends, it can be seen that over the years, there is a
pendulum of consensus that swings between large cap and small cap. I think that large
cap has definitely been in favor since March of 1994 and has grown especially
pronounced since May.
For the S&P 500, I use the Vanguard 500 Index which is a low cost fund and includes
dividends. To compare that with the Russell 2000 over periods of time, I took ratios of
the two indexes and then took ratios of each index' ratios. My Russell 2000 data only
goes back to 7/17/91.
From ......To........ R2000 increase/VFINX increase
7/17/91... 2/12/92... +11.55 %
2/12/92 ...10/6/92... (-11.23 %)
10/6/92 ...3/18/94... +20.08 %
3/18/94... NOW .......(-23.92 %)
Just since last May 24, the Russell 2000 index has done 13.95 % worse than the S&P
500 with dividends. I wish I could see volume of an index of small stocks like GRNO. I think there
is a real liquidity problem with the vast majority, in my opinion.
Geraldine Weiss is one of the advisors making market timing comments who use large
cap price to dividend ratio to time the market. She has been bearish for years and the
price to dividend ratio is at an all time high. After being wrong for several years, she is
now absolutely hysterical. But whenever some guru is asked whether the "market" is
due for a crash, the answer is "look at the small caps". Just at the top of a bull market
before going into a bear, small caps are supposed to be going crazy. Right now small
caps are anything but.
Maybe right now there is tax related selling/buying going on. Maybe investors are
selling for tax loss purposes and investing in large caps because that is where the action
is right now.
I think that when the consensus pendulum starts to swing back, it will come back really hard and fast.
Charles |
