WASHINGTON: The four main US stock barometers all logged record closing highs on Friday, marking the first grand slam in two months as small capitalisation stocks have caught up to their larger brethren. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite were already trading at all-time peaks before Friday, propelled higher by the relatively strong performance of large capitalisation stocks, leaving the Russell 2000 index lagging behind.
“Small-caps had a huge rally and were definitely taking a breather,” said Nicholas Colas, chief market strategist at Convergex. He said that comments on Thursday from US President Donald Trump indicating that a “phenomenal” tax package could be announced in as soon as two weeks revived some of the enthusiasm. The Russell, which is made up of companies with market values typically ranging from $300m-$2bn, surged by almost 14 per cent from the election of Mr Trump in November until the end of 2016. The performance easily topped the S&P 500, the most closely watched large-cap gauge, that advanced by 4.6 per cent over the same timeframe.
The outperformance was driven by expectations that small-caps, which are seen as more domestically focused, would have the most to win from the combination of pro-US growth and protectionist trade policies that have been pitched by Mr Trump. “Smaller companies tend to be more focused on the US market and have less foreign revenues,” Mr Colas said. “Any changes in the US tax code affect them disproportionately.” However, small-caps lost some of their momentum at the start of this year, rising 2.3 per cent year-to-date compared with 3.5 per cent for the S&P 500. The reversal of leadership has come as small-cap earnings for the fourth quarter of last year, which are still being released, have trailed large-caps. Earnings for small-cap groups as a whole have fallen by about 1 per cent from the previous year in the fourth quarter, compared with growth of 6 per cent for large-caps, according to Bank of America Merrill Lynch strategist Dan Suzuki.
