Home > NewsRelease > The Case for Small-Cap Value
The Case for Small-Cap Value
Greg Womack -- Certified Financial Planner Greg Womack -- Certified Financial Planner
For Immediate Release:
Dateline: Oklahoma City, OK
Monday, December 28, 2020

Mark Twain is reputed to have said that history doesn’t repeat itself, but it often rhymes.  A situation is now emerging in the market that is a potential rhyme with 1999: highly overvalued growth stocks vs shunned, overlooked and otherwise ignored small-cap value stocks.

As in 1999, growth stocks have outperformed value generally and small-cap value specifically for years – about a decade.  As in 1999, growth stocks have reached stratospheric – and probably unsustainable - levels of valuation.  Warren Buffet shunned growth stocks in 1999 because his favorite indicator – market capitalization vs GDP – had reached the then-unheard-of level of 140%.  Today it is over 180%! This has led to small cap value stocks falling to the lowest relative level vs large cap growth stocks since - you guessed it - 1999.  

The years between the dot-com crash and the financial crisis were a disaster for large cap growth, but small cap value did just fine: The S&P Small Cap 600 Value Index gained about +110% between 1/1/2000 and 12/31/2007, while the Nasdaq Composite over that same period lost more than -40% (and about -80% at its worst).  In the last month or two, small cap and value stocks have begun to stir (note the uptick in the chart).  Is it their time to shine again?  (Data from MSCI, chart from Grantham, Mayo, Van Otterloo & Co.)

(Sources:  All index- and returns-data from Yahoo Finance; news from Reuters, Barron’s, Wall St. Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, CNBC, FactSet.)

Best regards,

Womack Investment Advisers, Inc. 


Oklahoma / Main Office: 1366 E. 15th Street - Edmond, OK  73013 
California Office: 4660 La Jolla Village Dr., Ste. 100 - San Diego, CA 92122
Phone (405) 340-1717 - Toll Free (877) 340-1717 

 Website:  www.womackadvisers.com

  David Kostin, the Goldman Sachs chief U.S. equity strategist, wrote in a note to clients “The U.S. election is just 81 days away and represents a significant risk to our year-end forecast.” Analysts often mention the uncertainty surrounding presidential elections in the United States, and this year is sure to be no exception. However, John Stoltzfus, CIO of Oppenheimer Asset Management told clients, “Embrace the uncertainty.”   His research showed that historically, elections haven’t done much to prevent stocks from going up regardless of which political party prevails. Furthermore, Stoltzfus writes, “Uncertainty usually comes with opportunity and risk—two considerations essential in making investments.”     A study by Deutsche Bank showed that in Presidential election years in which the contest is thought to be “close”, stocks generally go up until a month or so before the election, then pull back a bit, and then resume their uptrend from around the election through the end of the
  The shortest bear market in history is over.   The Nasdaq Composite and Standard & Poor’s 500 Indices finished at new highs last week. The stock market is considered to be a leading economic indicator, so strong stock market performance suggests economic improvement ahead.   There was a caveat to last week’s gains, though. One large technology company was responsible for 60 percent of the S&P’s weekly gains (0.7 percent), reported Ben Levisohn of Barron’s . The same large company is also a component of the Dow Jones Industrials Index, which finished the week flat. Without that stock, the Dow would have finished the week lower. Levisohn wrote:   “The S&P 500 might have hit a record last week, but most stocks have been having bad days. On Friday, for instance, just 220 stocks in the S&P 500 closed higher for the day, and that was far from an anomaly. The S&P 500’s cumulative advance/decline line – a measure of the number of stocks finishing higher vers
  There was good news and bad news in last week’s employment report.   The good news was the U.S. Bureau of Labor Statistics delivered better-than-expected data about employment. In July, the U.S. economy added about 1.8 million new jobs.   That’s about 300,000 more than the Wall Street consensus forecast, according to Jeff Cox of CNBC , who reported, “…there were wide variations around the estimates as the pandemic’s resurgence dented plans to get the shuttered U.S. economy completely back online. Forecasts ranged from a decline of half a million jobs to a rise of 3 million…”   The flip side of employment is unemployment. The U-3 unemployment rate, which reflects unemployed people who are actively seeking a job, declined in July. It has moved steadily lower during the last few months, from 14.7 percent in April to 10.2 percent in July. The U-6 rate, which includes unemployed, underemployed, and discouraged workers, has declined from 22.8 percent in April to 16.5 percent
News Media Interview Contact
Name: Greg Womack, CFP
Title: President
Group: Womack Investment Advisers
Dateline: Edmond, OK United States
Direct Phone: 405-340-1717
Jump To Greg Womack -- Certified Financial Planner Jump To Greg Womack -- Certified Financial Planner
Contact Click to Contact
Other experts on these topics