Small-Caps Enjoy Their Best November Yet

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The stock market went on quite a tear in the 3+ weeks immediately following the election, with the month of November especially beneficial for small-cap stocks.

Before delving into what it all might mean for small-cap investors, here's a quick rundown to help contextualize just how dynamic a month it was:

1) This was the best November in the history of the Russell 2000 Index. featuring its highest monthly return since October 2011 when small-caps were just emerging from a precipitous decline.

2) The performance spread between small-cap and large-cap was the widest in 14 years (since April 2002).The small-cap Russell 2000 index gained 11.2% for the month versus respective gains of 3.9% and 3.7% for the large-cap Russell 1000 and S&P 500 Indexes.

3) Small-cap value enjoyed a good year's worth of results in one month! During November, the Russell 2000 Value advanced 13.3% compared to 9.0% for the Russell 2000 Growth.

4) Small-cap value earned an even bigger advantage quarter-to-date, thanks to better performance during the mini-correction earlier in the quarter. From 9/30/16-11/30/16, small-cap value was up 9.6% versus a gain of 2.2% for small-cap growth.

What drove small-cap value's lead?

The strength of small-cap value has come from cyclical (and diverse) sectors including Financials, Industrials, Consumer Discretionary, Energy, and Materials.

Financials benefited from a steepening yield curve that should help to boost bank profits, while optimism about accelerating economic growth helped Industrials and many Materials stocks. The U.S. consumer has ratcheted up spending, and rebounding commodity prices helped both Energy and, again, Materials.

Small-Cap Cyclical Sectors Lead in November

Russell 2000 Sector Returns November 2016 and QTD

1 Real Estate, formerly part of Financials, became a separate GICS sector on 8/31/16.

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