Will small caps outperform through 2016?

The Russell 2000 has lagged the S&P 500 since early 2014 - approximately 2 years.  Similarly in 2011, small caps turned down first prior to the Euro Debt Crisis induced mini bear market.  The 5 year chart shows that small caps have lagged the S&P 500 significantly.  These trends don't last forever.  Small caps are usually the first out of the gate during a market uptrend and the first into the tank during a market downtrend.  If one were to assume that the bad news is now behind us and the market will begin to price in future growth, small caps should lead at least for short term and intermediate term.  Since the market bottomed in Feb, small caps have been leading the S&P 500 by a 2:1 ratio - significant early outperformance.

Russell 2000 Turns Positive For The Year. Small Cap Stocks To Lead As Risk On Trend Resumes.

The Russell 2000 has rallied hard from the October lows after being down >10% for the year.  If history serves as an appropriate guide, small caps will lead the S&P 500 to the end of the year and beyond.  IWM is the largest ETF that tracks the Russell 2000.  VB, VXF and IJR are likely better ETF choices to track small US stock indices.

Year End Mid Term Election Year Rally Underway. Small & Mid Cap Stocks Leading.

The strong mid-term election year end rally is underway.  Small-cap (IWM) and mid-cap (MDY) ETFs have taken the lead.

Small Cap Stocks To Lead Long Term

Everyone knows that small cap stocks are the canary-in-the-coal mine for the economy.  One can assess the strength of the overall global economy based on the performance of small cap stocks relative to large cap stocks.  They tend to outperform when business conditions are good (i.e. consumers are spending, fear is moderate, lenders are lending, interest rates are low, etc.)  During bear markets, small cap stocks underperform.  During bull markets, they outperform.  We are currently witnessing the beginning of long term small cap stock outperformance.

From a technical perspective, IWM which tracks the Russell 2000 small cap index, has broken out of a large ascending triangle pattern and is on its way to new highs.  We're just getting started...

S&P 400 Mid Cap Index Is The Intermediate Term Winner

No one would have guessed in 2009 that the S&P 400 Mid Cap Index would lead as it has post financial crisis. The charts speak for themselves.  Visit www.chartoftheday.com for more great charts.

QQQ Continues To Lag S&P 500. PerfChart QQQ SPY EEM XLF IWM MDY FDN IBB XIU

Mega cap tech stocks (QQQ) have been lagging the S&P 500 for most of the year, largely due to the poor performance of a few big names (i.e. AAPL, MSFT, INTC).  Biotechnology (IBB), on the other hand, is way out front.