Small Cap's Larger Decline Is An Observation, Not 'Indicator'

Whenever a correction strikes markets—one of those sharp, sudden, sentiment-fueled drops of -10% to -20%—there are a few things you can bank on happening. Often there will be a big story. Headlines will probably argue the market is right to be down (which generally won’t happen early in a bear market). And you will find articles looking for hidden clues worse things are in store. We have seen that third one a lot over the past week or so, with a growing belief small-cap stocks’ larger decline implies they know something the larger-cap S&P 500 doesn’t. But a quick tour through market history shows small-cap underperformance during a downturn isn’t a magic indicator. Read Full Article »