Small caps outperformed the market today.
One day doesn’t a trend reversal make, but this situation could get interesting.
On November 24, I wrote that big company stocks were now outperforming small company stocks http://jubakpicks.com/2009/11/24/big-caps-start-to-beat-small-caps-whats-that-all-about/.
Reasons for that, I suggested, included the greater exposure of big company stocks to a weak dollar. Big U.S. companies tend to have a greater percentage of their sales coming from overseas than small companies do. That means they get a bigger boost to earnings and sales when strong local currencies are converted into weak dollars. These companies also get a competitive edge from a weak dollar since they’re selling a larger share of their product to overseas customers who find it cheaper than local products due to a falling U.S. dollar.
But today, December 4 after the surprisingly strong jobs number of that morning, small company stocks, as represented by the Russell 2000 index outperformed big company stocks.
I have to wonder, if small company stocks got a boost in popularity from a rallying dollar. A stronger dollar would hurt big companies relatively more, in the same way that a falling dollar helped them.
But it also seems like an over-reaction like the reaction to one month’s unemployment numbers as a whole. I don’t see any dollar rally lasting long enough to provide a relative edge to small company stocks.
But as I said, this could get interesting.