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Small Caps Have Best Month Ever as Investor Sentiment Spikes

December 01, 2020

Tuesday, December 1st, 2020

“Small Caps Have Best Month Ever as Investor Sentiment Spikes”

The Russell 2000, an index of smaller capitalization companies, had its best monthly gain ever, rallying 18.3% in November. The Dow Jones Industrial Average and S&P 500 also had a strong November, jumping 11.8% and 11%, respectively. The Dow’s 11.8% gain was its best monthly return since January 1987. It was a great month all around, but smaller companies were the clear winners.  

Small businesses, and small publicly traded companies, have been more adversely impacted by economic restrictions this year, which means they had more to benefit from the impact of a vaccine leading to looser restrictions in the foreseeable future. In terms of relative performance, small caps fell harder in the first quarter selloff and, until recently, had been trailing large caps by a wide margin year-to-date. 

The market rally had been concentrated in U.S. large cap growth companies, but we are now seeing small caps, value, and even international stocks join the party.

It also took a while for investor sentiment to catch up to the market’s rally, but we are finally starting to see evidence of investors buying in. Now that we are past the election and have some promising potential for vaccine distribution, and the market is back to all-time highs, investor sentiment has finally returned to pre-pandemic levels.

Source: CNN Fear and Greed Index 

One adage that seems to hold true over time, regardless of the crisis we are in, is that investors pay a very high price for certainty when it comes to investing. Historical sentiment trends show that investors, even if they won’t admit it, prefer paying higher prices for positive market momentum instead of holding through or buying into the uncertainty of negative price trends.

2020 is unique in many ways, but just the same as it relates to the behavioral tendencies of the average investor. If you would have waited for the “dust to settle” on the election and vaccine news, you would be buying into a market that had already rallied over 50% off the March lows. A very high price to pay vs. the alternative option of just sitting on your hands.

Jack Holmes, CFA®

WealthPlan Partners




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing.  Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed. Statements of forecast and trends are for informational purposes and are not guaranteed to occur in the future.