December 11, 2020
Stocks are liquid and driven by supply & demand. Simply put, there is a time to own certain asset classes, and a time not to. Market leadership tends to rotate. For most of 2020, technology (specifically large cap technology) has dominated the markets on a relative basis. Small cap stocks had previously the rest of the markets and are now playing a little game of catch-up.
The two charts below show the Russell 2000, which is an index of small cap stocks, and the Nasdaq, an index of mostly tech-related stocks. You can see that in the chart below, the Nasdaq’s relative strength to the S&P 500 has been on a rapid rise in 2020, while the Russell 2000’s relative strength had previously struggled versus the S&P 500. Recently, however, the Nasdaq’s relative strength versus the large cap index has been flat, while the Russell 2000 (small cap stocks) has rapidly increased over the past few months: