Is now the time to consider small-cap stocks?

As the United States recovers from the COVID-19 pandemic, we find the economy has entered into a new cycle and a period of economic expansion, which typically favor equities. Historical observations have shown that small-cap stocks tend to outperform larger-cap securities during economic expansions – especially at the beginning of a cycle – because they are generally more levered to economic strength. A look at the start of the last three economic expansions in the following chart shows that the Russell 2000® Index outperformed the Russell 1000® Index by 23.0 percentage points on average, or 7.1 percentage points annualized.

Cumulative excess returns, Russell 2000 Index versus Russell 1000 Index

First three years of last three economic cycles*

Cumulative excess returns, Russell 2000 Index versus Russell 1000 Index

Chart sources: YCharts, *National Bureau of Economic Research (NBER).

Past performance does not guarantee future results.

Investing involves risk, including the possible loss of principal.

What this means for investors

Small-cap stocks offer the potential for outsized returns over large-cap stocks. We are in the early stages of this economic cycle, and it is not too late for investors to consider small-cap growth. If this economic cycle is like previous cycles, it could last eight to 10 years.


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Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

Nothing presented should be construed as a recommendation to purchase or sell any security or follow any investment technique or strategy.

The views expressed represent the investment team's assessment of the market environment as of April 2021 and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe. The Russell 2000 Index is a subset of the Russell 3000® Index, representing approximately 10% of the total market capitalization of that index.

The Russell 1000 Index measures the performance of the large-cap segment of the US equity universe. The Russell 1000 Index is a subset of the Russell 3000 Index and includes approximately 1,000 of the largest securities based on a combination of their market capitalization and current index membership.

Investments in small and/or medium-sized companies typically exhibit greater risk and higher volatility than larger, more established companies.

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Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

Charts shown throughout are for illustrative purposes only and not meant to predict actual results.

Chart is for illustrative purposes and is not representative of the performance of any specific investment.

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