Large cap stocks outperformed in 2021 — will small caps rebound in 2022? – The Average Joe


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    Large cap stocks outperformed in 2021 — will small caps rebound in 2022?


    December 7, 2021

    russell 2000

    Compared to last year when nearly anything purchased at the bottom of the market went up — investing in 2021 was a lot more challenging. ~93% of stocks in the S&P 500 went through a 10% correction in 2021.

    According to Ben Carlson of Ritholtz Wealth Management:

    • 1 out of 3 stocks are down in the past year.
    • 1 out of every 5 stocks is down over 20% from their 52-week highs.

    Despite these drops, in the past year, the Russell 3000 — an index consisting of 3,000 of the largest US stocks — is still up 22%.

    Over the past 12 months, it:

    • Paid to go big: The 20 largest companies were up 35% and only 3 of these were down.
    • Paid to go even bigger: A portfolio of the 5 of the largest companies — Apple, Microsoft, Alphabet, Amazon and Tesla — was up 42%.

    The time to go small: Small caps — companies with $300M-$2B in market capitalization — have underperformed in 2021 — but they tend to perform better when:

    • Inflation is high: In the past decade, small-cap stocks performed better when high inflation was expected — according to CME group (via WSJ).
    • Economy reopens: Small-cap stocks are more sensitive to market cycles — recovering as the economy opens up.

    The ETF way: iShares Russell 2000 ETF (NYSE:IWM) — an index consisting of 2000 of the smallest stocks in the US — is only up 13% in 2021.

    With the anticipated market conditions for 2022, we could see a reversal of the small-cap stocks’ fortunes.

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