Posted 12/21/2023, 9:15:34 PM
Small Cap Indexes Diverge: S&P 600 Outperforms on Quality While Russell 2000 Surges on Rate Bets
- Small caps have surged over 20% since Fed's rate pause on Nov 1, as investors expect rate cuts ahead
- Many strategists note the Russell 2000 index has low profitability - 40% companies not profitable, 31% "zombie" firms
- Preferable to look at S&P 600 small cap index instead, which has profitability filter and higher quality
- Over past month, S&P 600 and Russell 2000 returned similarly, but over 5 years S&P 600 has outperformed
- Characteristics like profitability make more sense to focus on rather than just Russell 2000 index exposure