Thursday, November 17, 2016
The rally in the three major U.S. stock indexes has taken a pause, but small and mid-cap stocks keep climbing higher, helped by the fact that they are less sensitive to a rising dollar.
The Russell 2000, composed of small-cap stocks, and the S&P Mid Cap 400 rose 0.7 percent and 0.6 percent, respectively, in late morning, hitting new highs. Small-cap stocks are those with a market capital of$300 million to $2 billion, while mid caps are those between $2 billion to $10 billion.
The rally in the two indexes has come on the back of Republican Donald Trump‘s surprising victory over Hillary Clinton. Since Election Day, the Russell has spiked 10.57 percent, while mid caps have climbed 6.68 percent.
Russell 2000 (green) and S&P Mid Cap 400 (blue) since Nov. 8Source: FactSet
The dollar has also risen bout 3 percent against a basket of currencies.
“When you look for signs that a new paradigm is in place for the economy, the strong dollar doesn’t hurt them as much as the big caps. Unlike the S&P 500, they don’t do 40 percent of their business overseas,” said Art Hogan, chief market strategist at Wunderlich Securities.
The three major large-cap stock indexes — the Dow Jones industrial average, S&P 500 and Nasdaq composite — also rallied following the election, with the Dow hitting new all-time highs and posting a seven-day winning streak.
Adam Sarhan, CEO at 50 Park Investments, said the spike in small and mid-cap stocks “signals that risk appetite remains strong.” He also said “the fact that the large indexes are pausing is not a bearish sign,” but rather a natural reaction to such sharp gains over a period of time.