This One’s a Head Scratcher

Small businesses got killed during the first few months of the year. Unsurprisingly, small stocks followed suit. The Russell Micro-cap index fell 42% from the middle of January to the middle of March.

With a weighted average market cap of just $660 million, these stocks are more sensitive to fluctuations in the economy, are less well-capitalized, and have higher borrowing costs than their mega-cap brethren. Their relative weakness during the downturn surprised nobody.

I was poking around today and was shocked, truly shocked, to learn that micro-caps are now outperforming large-caps in 2020. I mean, how?

The micro-cap index is now at an all-time high. It’s 13% higher than it was in January, before the pandemic transformed life as we know it. I know people will point to the Fed. I know people will say stocks are forward-looking. But given the carnage that we’re still experiencing on main street, I cannot believe that the stocks most tied to it are at an all-time high.