Are small-caps on the road to recovery?

Following periods of sharp market decline, historically we have seen signs of recovery within 18 months after the initial event. However, these signs have varied depending on the area of the market.

Historically, small-cap equities, as represented by the Russell 2000® Index, tended to recover more strongly, outperforming the broader market and large-caps. This trend could be seen, in a historical context, three months following a period of market decline, but also continue six months, 12 months, and even 18 months out.

Small-caps on the road to recovery charts

Source: Morningstar. Data as of May 14, 2020.

Past performance does not guarantee future results. Charts shown throughout are for illustrative purposes only and not meant to predict actual results. Chart is for illustrative purposes and not representative of the performance of any specific investment.

*Outperformance of cumulative return of the Russell 2000 Index versus the Russell 1000 Index 18 months following each period of market decline noted above.

What this means for investors:

We believe it is important for investors to remain focused on the long term. In the past, small-caps’ performance has generally led that of larger-cap stocks during times of recovery, and we’ve seen small-business momentum rekindled as the economy shifted into expansion. While past performance is no indicator of future results, we believe there may be a potential for recovery and stronger performance in the small-cap space following recessionary periods.



Investing involves risk, including the possible loss of principal.

Past performance does not guarantee future results.

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

Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.

Market risk is the risk that all or a majority of the securities in a certain market – like the stock market or bond market – will decline in value because of factors such as adverse political or economic conditions, future expectations, investor confidence, or heavy institutional selling.

The views expressed represent the investment team’s assessment of the market environment as of May 2020, 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 S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value and is often used to represent performance of the US stock market.

The Russell 2000 Index measures the performance of the small-cap segment of the US equity universe.

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.

Frank Russell Company is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company.

All third-party marks cited are the property of their respective owners.

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