\n Ratio of S&P SmallCap 600 to S&P 500 trailing price-to-earnings\n (SML\/SPX P\/Es)\n <\/h4>\n \n \n ![\"Ratio](\"https:\/\/www.rbcwealthmanagement.com\/en-asia\/wp-content\/uploads\/sites\/8\/2023\/02\/can-small-caps-go-distance-en-chart-1.png\"\n)
\n \n Line chart showing the ratio of S&P SmallCap 600 to S&P 500\n trailing price-to-earnings (SML P\/E divided by SPX P\/E) since 2004 and\n the average ratio. The average ratio is 1.32x. At the beginning of\n 2024, the ratio rose to about 1.6. It then quickly declined to between\n around 1.1-1.3 and remained in that range through much of 2009. In\n mid-2009 it began to spike and reached a peak of 2.1 in April 2010.\n Thereafter it began to drift down, reaching a little under 1.0 until\n April 2020. Following that it surged again, reaching almost 2.0 in\n January 2021. It then fell sharply, reaching below 0.9 in September\n 2021.\n <\/p>\n \n Source – RBC Wealth Management, Bloomberg; monthly data through\n 1\/17\/24\n <\/p>\n <\/div>\n <\/div>\n
Small caps have some winning attributes<\/h2>\n \n - \n Valuations look attractive. <\/strong>The S&P SmallCap 600\n trades near 20-year lows relative to the S&P 500 on a trailing\n price-to-earnings (P\/E) basis. It also trades at a notable relative\n discount when forward earnings estimates are taken into consideration,\n and its trailing and forward P\/E valuations are below its own historical\n averages. Based on price-to-sales metrics \u2013 which we think are more\n important for small caps \u2013 both indexes look reasonable to us, sitting\n near their long-term averages.\n <\/li>\n
- \n They typically do well during Fed easing cycles.<\/strong> Since\n the late 1970s, small caps have tended to trade higher when the Fed cut\n interest rates and have struggled more often than not when rates rose,\n according to Calvasina. We think the Fed is likely to start cutting\n rates in the middle of this year.\n <\/li>\n
- \n
Balance sheets and funding issues seem better than feared. <\/strong\n >Fallout from the Fed\u2019s aggressive rate hike cycle weighed on small caps\n for much of last year, amid concerns that higher rates on debt issuance\n and loans could meaningfully constrain balance sheets. Small-cap\n companies are more dependent on external funding than their large-cap\n peers. But Calvasina\u2019s data indicate the debt situation for small-cap\n companies as a group is better than it could have been, as they have\n increasingly shifted to long-term funding. The effective interest rate\n for Russell 2000 companies was between 4.8 percent and 5.1 percent as of\n December 2023, still well below average funding costs since 1989 and\n somewhat below the average since 2003.\n <\/li>\n - \n
Their portfolio diversification benefits go beyond just size.<\/strong\n >\n Sector weightings differ meaningfully between large-cap and small-cap\n indexes. Information Technology and Communication Services have much\n higher weightings in the S&P 500, whereas economically sensitive\n (cyclical) sectors like Industrials, Financials, Consumer Discretionary,\n and Real Estate have higher weightings in the small-cap indexes, as the\n table illustrates. Also, the 10 largest stocks in the S&P 500\n represent a significant 30.9 percent of that index (this includes the\n \u201cMagnificent Seven\u201d tech-oriented stocks), whereas the 10 largest stocks\n in the S&P SmallCap 600 and Russell 2000 represent only 5.8 percent\n and 3.3 percent, respectively. Therefore, the latter are much more\n diversified.\n <\/li>\n <\/ul>\n \n Sector weightings and other characteristics differ meaningfully between\n large and small caps\n <\/h3>\n \n \n \n \n <\/th>\n \n S&P 500 (large cap)\n <\/th>\n \n S&P SmallCap
\n 600\n <\/th>\n \n Russell 2000 (small cap)\n <\/th>\n <\/tr>\n <\/thead>\n \n \n \n Sector weightings<\/strong>\n <\/td>\n <\/tr>\n\n \n Communication Services<\/td>\n 8.6%<\/td>\n 2.7%<\/td>\n 1.4%<\/td>\n <\/tr>\n \n Consumer Discretionary<\/td>\n 10.9%<\/td>\n 14.8%<\/td>\n 13.3%<\/td>\n <\/tr>\n \n Consumer Staples<\/td>\n 6.2%<\/td>\n 4.4%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n Energy<\/td>\n 3.9%<\/td>\n 4.2%<\/td>\n 7.4%<\/td>\n <\/tr>\n \n Financials<\/td>\n 13.0%<\/td>\n 18.5%<\/td>\n 16.0%<\/td>\n <\/tr>\n \n Health Care<\/td>\n 12.6%<\/td>\n 10.4%<\/td>\n 15.1%<\/td>\n <\/tr>\n \n Industrials<\/td>\n 8.8%<\/td>\n 17.2%<\/td>\n 18.4%<\/td>\n <\/tr>\n \n Information Technology<\/td>\n 28.9%<\/td>\n 12.0%<\/td>\n 12.6%<\/td>\n <\/tr>\n \n Materials<\/td>\n 2.4%<\/td>\n 5.9%<\/td>\n 3.9%<\/td>\n <\/tr>\n \n Real Estate<\/td>\n 2.5%<\/td>\n 7.7%<\/td>\n 6.4%<\/td>\n <\/tr>\n \n Utilities<\/td>\n 2.3%<\/td>\n 2.0%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n \n Index characteristics<\/strong>\n <\/td>\n <\/tr>\n \n Number of constituents (stocks)<\/td>\n 503<\/td>\n 602<\/td>\n 1966<\/td>\n <\/tr>\n \n Largest market cap in USD millions<\/td>\n $2,994,371.34<\/td>\n $8,186.53<\/td>\n $14,993.00<\/td>\n <\/tr>\n \n Mean market cap in USD millions<\/td>\n $83,594.11<\/td>\n $2,065.95<\/td>\n $3,265.00<\/td>\n <\/tr>\n \n Median market cap in USD millions<\/td>\n $33,544.75<\/td>\n $1,742.67<\/td>\n $965.00<\/td>\n <\/tr>\n \n Weight of largest constituent<\/td>\n 7.1%<\/td>\n 0.7%<\/td>\n 0.5%<\/td>\n <\/tr>\n \n Weight of top 10 constituents<\/td>\n 30.9%<\/td>\n 5.8%<\/td>\n 3.3%<\/td>\n <\/tr>\n \n Price ratios*<\/strong> \n <\/td>\n <\/tr>\n \n P\/E current<\/td>\n 22.79x<\/td>\n 15.58x<\/td>\n 29.21x<\/td>\n <\/tr> \n \n P\/E 20-year average<\/td>\n 18.39x<\/td>\n 24.01x<\/td>\n 38.45x<\/td>\n <\/tr>\n \n P\/S current<\/td>\n 2.57x<\/td>\n 0.95x<\/td>\n 1.18x<\/td>\n <\/tr>\n \n P\/S 20-year average<\/td>\n 1.78x<\/td>\n 1.01x<\/td>\n 1.14x<\/td>\n <\/tr>\n <\/tbody>\n <\/table>\n<\/div>\n \n * Price-to-earnings (P\/E) and price-to-sales (P\/S) data are shown on a\n trailing basis.\n <\/p>\n
\n Source – RBC Wealth Management, S&P Dow Jones Indexes, FTSE Russell,\n iShares, Bloomberg, FactSet. Sector weightings are rounded. Sector\n weightings and index characteristics as of 12\/31\/23. Price ratios as of\n 1\/17\/24.\n <\/p>\n \n
But we think patience is needed<\/h2>\n \n - \n
Small caps tend to underperform during periods of low GDP\n growth.<\/strong\n >\n Currently, RBC Economics and the Bloomberg consensus forecast are\n calling for below-average U.S. GDP growth in 2024. Small-cap stocks\n typically underperform in such environments because they have a greater\n share of cyclical stocks, and earnings and revenue growth are harder to\n come by when the economy is sluggish. They tend to perform better when\n GDP growth is above trend, especially in the early stages of a growth\n cycle coming out of a recession.\n <\/li>\n - \n
If a hard landing materializes, they could trade back down to\n previous lows. <\/strong\n >The Russell 2000 was fully pricing in a recession at its low point last\n October, according to Bloomberg Intelligence. If the consensus forecast\n for slow growth this year is wrong and a recession begins, small-cap\n indexes could fall back to those lows.\n <\/li>\n <\/ul>\n It\u2019s a long way to the finish line<\/h2>\n
\n We still think a moderate Overweight position in U.S. small caps is\n warranted due to the steeply discounted valuation relative to large caps.\n But we\u2019re cognizant that an unusually wide range of plausible economic\n outcomes in 2024 could impact small caps\u2019 earnings and revenue growth.\n That\u2019s why we think small caps will likely experience ups and downs this\n year, and investors should take a patient approach.\n <\/p>\n","protected":false},"excerpt":{"rendered":"
After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.<\/p>\n","protected":false},"author":15,"featured_media":11521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2024-01-18T14:39:47","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42],"tags":[394,393],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[205],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-11520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-small-cap-equities-2","tag-small-cap-equities","rbcwm_content_owner-pag","rbcwm_segment-business-owners-and-entrepreneurs","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.","rbcwm_post_author":"","rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\n
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\n \n \n Line chart showing the ratio of S&P SmallCap 600 to S&P 500\n trailing price-to-earnings (SML P\/E divided by SPX P\/E) since 2004 and\n the average ratio. The average ratio is 1.32x. At the beginning of\n 2024, the ratio rose to about 1.6. It then quickly declined to between\n around 1.1-1.3 and remained in that range through much of 2009. In\n mid-2009 it began to spike and reached a peak of 2.1 in April 2010.\n Thereafter it began to drift down, reaching a little under 1.0 until\n April 2020. Following that it surged again, reaching almost 2.0 in\n January 2021. It then fell sharply, reaching below 0.9 in September\n 2021.\n <\/p>\n Small caps have some winning attributes<\/h2>\n
\n \n Source – RBC Wealth Management, Bloomberg; monthly data through\n 1\/17\/24\n <\/p>\n <\/div>\n <\/div>\n
Small caps have some winning attributes<\/h2>\n \n - \n Valuations look attractive. <\/strong>The S&P SmallCap 600\n trades near 20-year lows relative to the S&P 500 on a trailing\n price-to-earnings (P\/E) basis. It also trades at a notable relative\n discount when forward earnings estimates are taken into consideration,\n and its trailing and forward P\/E valuations are below its own historical\n averages. Based on price-to-sales metrics \u2013 which we think are more\n important for small caps \u2013 both indexes look reasonable to us, sitting\n near their long-term averages.\n <\/li>\n
- \n They typically do well during Fed easing cycles.<\/strong> Since\n the late 1970s, small caps have tended to trade higher when the Fed cut\n interest rates and have struggled more often than not when rates rose,\n according to Calvasina. We think the Fed is likely to start cutting\n rates in the middle of this year.\n <\/li>\n
- \n
Balance sheets and funding issues seem better than feared. <\/strong\n >Fallout from the Fed\u2019s aggressive rate hike cycle weighed on small caps\n for much of last year, amid concerns that higher rates on debt issuance\n and loans could meaningfully constrain balance sheets. Small-cap\n companies are more dependent on external funding than their large-cap\n peers. But Calvasina\u2019s data indicate the debt situation for small-cap\n companies as a group is better than it could have been, as they have\n increasingly shifted to long-term funding. The effective interest rate\n for Russell 2000 companies was between 4.8 percent and 5.1 percent as of\n December 2023, still well below average funding costs since 1989 and\n somewhat below the average since 2003.\n <\/li>\n - \n
Their portfolio diversification benefits go beyond just size.<\/strong\n >\n Sector weightings differ meaningfully between large-cap and small-cap\n indexes. Information Technology and Communication Services have much\n higher weightings in the S&P 500, whereas economically sensitive\n (cyclical) sectors like Industrials, Financials, Consumer Discretionary,\n and Real Estate have higher weightings in the small-cap indexes, as the\n table illustrates. Also, the 10 largest stocks in the S&P 500\n represent a significant 30.9 percent of that index (this includes the\n \u201cMagnificent Seven\u201d tech-oriented stocks), whereas the 10 largest stocks\n in the S&P SmallCap 600 and Russell 2000 represent only 5.8 percent\n and 3.3 percent, respectively. Therefore, the latter are much more\n diversified.\n <\/li>\n <\/ul>\n \n Sector weightings and other characteristics differ meaningfully between\n large and small caps\n <\/h3>\n \n \n \n \n <\/th>\n \n S&P 500 (large cap)\n <\/th>\n \n S&P SmallCap
\n 600\n <\/th>\n \n Russell 2000 (small cap)\n <\/th>\n <\/tr>\n <\/thead>\n \n \n \n Sector weightings<\/strong>\n <\/td>\n <\/tr>\n\n \n Communication Services<\/td>\n 8.6%<\/td>\n 2.7%<\/td>\n 1.4%<\/td>\n <\/tr>\n \n Consumer Discretionary<\/td>\n 10.9%<\/td>\n 14.8%<\/td>\n 13.3%<\/td>\n <\/tr>\n \n Consumer Staples<\/td>\n 6.2%<\/td>\n 4.4%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n Energy<\/td>\n 3.9%<\/td>\n 4.2%<\/td>\n 7.4%<\/td>\n <\/tr>\n \n Financials<\/td>\n 13.0%<\/td>\n 18.5%<\/td>\n 16.0%<\/td>\n <\/tr>\n \n Health Care<\/td>\n 12.6%<\/td>\n 10.4%<\/td>\n 15.1%<\/td>\n <\/tr>\n \n Industrials<\/td>\n 8.8%<\/td>\n 17.2%<\/td>\n 18.4%<\/td>\n <\/tr>\n \n Information Technology<\/td>\n 28.9%<\/td>\n 12.0%<\/td>\n 12.6%<\/td>\n <\/tr>\n \n Materials<\/td>\n 2.4%<\/td>\n 5.9%<\/td>\n 3.9%<\/td>\n <\/tr>\n \n Real Estate<\/td>\n 2.5%<\/td>\n 7.7%<\/td>\n 6.4%<\/td>\n <\/tr>\n \n Utilities<\/td>\n 2.3%<\/td>\n 2.0%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n \n Index characteristics<\/strong>\n <\/td>\n <\/tr>\n \n Number of constituents (stocks)<\/td>\n 503<\/td>\n 602<\/td>\n 1966<\/td>\n <\/tr>\n \n Largest market cap in USD millions<\/td>\n $2,994,371.34<\/td>\n $8,186.53<\/td>\n $14,993.00<\/td>\n <\/tr>\n \n Mean market cap in USD millions<\/td>\n $83,594.11<\/td>\n $2,065.95<\/td>\n $3,265.00<\/td>\n <\/tr>\n \n Median market cap in USD millions<\/td>\n $33,544.75<\/td>\n $1,742.67<\/td>\n $965.00<\/td>\n <\/tr>\n \n Weight of largest constituent<\/td>\n 7.1%<\/td>\n 0.7%<\/td>\n 0.5%<\/td>\n <\/tr>\n \n Weight of top 10 constituents<\/td>\n 30.9%<\/td>\n 5.8%<\/td>\n 3.3%<\/td>\n <\/tr>\n \n Price ratios*<\/strong> \n <\/td>\n <\/tr>\n \n P\/E current<\/td>\n 22.79x<\/td>\n 15.58x<\/td>\n 29.21x<\/td>\n <\/tr> \n \n P\/E 20-year average<\/td>\n 18.39x<\/td>\n 24.01x<\/td>\n 38.45x<\/td>\n <\/tr>\n \n P\/S current<\/td>\n 2.57x<\/td>\n 0.95x<\/td>\n 1.18x<\/td>\n <\/tr>\n \n P\/S 20-year average<\/td>\n 1.78x<\/td>\n 1.01x<\/td>\n 1.14x<\/td>\n <\/tr>\n <\/tbody>\n <\/table>\n<\/div>\n \n * Price-to-earnings (P\/E) and price-to-sales (P\/S) data are shown on a\n trailing basis.\n <\/p>\n
\n Source – RBC Wealth Management, S&P Dow Jones Indexes, FTSE Russell,\n iShares, Bloomberg, FactSet. Sector weightings are rounded. Sector\n weightings and index characteristics as of 12\/31\/23. Price ratios as of\n 1\/17\/24.\n <\/p>\n \n
But we think patience is needed<\/h2>\n \n - \n
Small caps tend to underperform during periods of low GDP\n growth.<\/strong\n >\n Currently, RBC Economics and the Bloomberg consensus forecast are\n calling for below-average U.S. GDP growth in 2024. Small-cap stocks\n typically underperform in such environments because they have a greater\n share of cyclical stocks, and earnings and revenue growth are harder to\n come by when the economy is sluggish. They tend to perform better when\n GDP growth is above trend, especially in the early stages of a growth\n cycle coming out of a recession.\n <\/li>\n - \n
If a hard landing materializes, they could trade back down to\n previous lows. <\/strong\n >The Russell 2000 was fully pricing in a recession at its low point last\n October, according to Bloomberg Intelligence. If the consensus forecast\n for slow growth this year is wrong and a recession begins, small-cap\n indexes could fall back to those lows.\n <\/li>\n <\/ul>\n It\u2019s a long way to the finish line<\/h2>\n
\n We still think a moderate Overweight position in U.S. small caps is\n warranted due to the steeply discounted valuation relative to large caps.\n But we\u2019re cognizant that an unusually wide range of plausible economic\n outcomes in 2024 could impact small caps\u2019 earnings and revenue growth.\n That\u2019s why we think small caps will likely experience ups and downs this\n year, and investors should take a patient approach.\n <\/p>\n","protected":false},"excerpt":{"rendered":"
After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.<\/p>\n","protected":false},"author":15,"featured_media":11521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2024-01-18T14:39:47","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42],"tags":[394,393],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[205],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-11520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-small-cap-equities-2","tag-small-cap-equities","rbcwm_content_owner-pag","rbcwm_segment-business-owners-and-entrepreneurs","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.","rbcwm_post_author":"","rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\n
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\n Sector weightings and other characteristics differ meaningfully between\n large and small caps\n <\/h3>\n \n \n \n \n <\/th>\n \n S&P 500 (large cap)\n <\/th>\n \n S&P SmallCap
\n 600\n <\/th>\n \n Russell 2000 (small cap)\n <\/th>\n <\/tr>\n <\/thead>\n \n \n \n Sector weightings<\/strong>\n <\/td>\n <\/tr>\n\n \n Communication Services<\/td>\n 8.6%<\/td>\n 2.7%<\/td>\n 1.4%<\/td>\n <\/tr>\n \n Consumer Discretionary<\/td>\n 10.9%<\/td>\n 14.8%<\/td>\n 13.3%<\/td>\n <\/tr>\n \n Consumer Staples<\/td>\n 6.2%<\/td>\n 4.4%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n Energy<\/td>\n 3.9%<\/td>\n 4.2%<\/td>\n 7.4%<\/td>\n <\/tr>\n \n Financials<\/td>\n 13.0%<\/td>\n 18.5%<\/td>\n 16.0%<\/td>\n <\/tr>\n \n Health Care<\/td>\n 12.6%<\/td>\n 10.4%<\/td>\n 15.1%<\/td>\n <\/tr>\n \n Industrials<\/td>\n 8.8%<\/td>\n 17.2%<\/td>\n 18.4%<\/td>\n <\/tr>\n \n Information Technology<\/td>\n 28.9%<\/td>\n 12.0%<\/td>\n 12.6%<\/td>\n <\/tr>\n \n Materials<\/td>\n 2.4%<\/td>\n 5.9%<\/td>\n 3.9%<\/td>\n <\/tr>\n \n Real Estate<\/td>\n 2.5%<\/td>\n 7.7%<\/td>\n 6.4%<\/td>\n <\/tr>\n \n Utilities<\/td>\n 2.3%<\/td>\n 2.0%<\/td>\n 2.8%<\/td>\n <\/tr>\n \n \n Index characteristics<\/strong>\n <\/td>\n <\/tr>\n \n Number of constituents (stocks)<\/td>\n 503<\/td>\n 602<\/td>\n 1966<\/td>\n <\/tr>\n \n Largest market cap in USD millions<\/td>\n $2,994,371.34<\/td>\n $8,186.53<\/td>\n $14,993.00<\/td>\n <\/tr>\n \n Mean market cap in USD millions<\/td>\n $83,594.11<\/td>\n $2,065.95<\/td>\n $3,265.00<\/td>\n <\/tr>\n \n Median market cap in USD millions<\/td>\n $33,544.75<\/td>\n $1,742.67<\/td>\n $965.00<\/td>\n <\/tr>\n \n Weight of largest constituent<\/td>\n 7.1%<\/td>\n 0.7%<\/td>\n 0.5%<\/td>\n <\/tr>\n \n Weight of top 10 constituents<\/td>\n 30.9%<\/td>\n 5.8%<\/td>\n 3.3%<\/td>\n <\/tr>\n \n Price ratios*<\/strong> \n <\/td>\n <\/tr>\n \n P\/E current<\/td>\n 22.79x<\/td>\n 15.58x<\/td>\n 29.21x<\/td>\n <\/tr> \n \n P\/E 20-year average<\/td>\n 18.39x<\/td>\n 24.01x<\/td>\n 38.45x<\/td>\n <\/tr>\n \n P\/S current<\/td>\n 2.57x<\/td>\n 0.95x<\/td>\n 1.18x<\/td>\n <\/tr>\n \n P\/S 20-year average<\/td>\n 1.78x<\/td>\n 1.01x<\/td>\n 1.14x<\/td>\n <\/tr>\n <\/tbody>\n <\/table>\n<\/div>\n \n * Price-to-earnings (P\/E) and price-to-sales (P\/S) data are shown on a\n trailing basis.\n <\/p>\n
\n Source – RBC Wealth Management, S&P Dow Jones Indexes, FTSE Russell,\n iShares, Bloomberg, FactSet. Sector weightings are rounded. Sector\n weightings and index characteristics as of 12\/31\/23. Price ratios as of\n 1\/17\/24.\n <\/p>\n \n
But we think patience is needed<\/h2>\n \n - \n
Small caps tend to underperform during periods of low GDP\n growth.<\/strong\n >\n Currently, RBC Economics and the Bloomberg consensus forecast are\n calling for below-average U.S. GDP growth in 2024. Small-cap stocks\n typically underperform in such environments because they have a greater\n share of cyclical stocks, and earnings and revenue growth are harder to\n come by when the economy is sluggish. They tend to perform better when\n GDP growth is above trend, especially in the early stages of a growth\n cycle coming out of a recession.\n <\/li>\n - \n
If a hard landing materializes, they could trade back down to\n previous lows. <\/strong\n >The Russell 2000 was fully pricing in a recession at its low point last\n October, according to Bloomberg Intelligence. If the consensus forecast\n for slow growth this year is wrong and a recession begins, small-cap\n indexes could fall back to those lows.\n <\/li>\n <\/ul>\n It\u2019s a long way to the finish line<\/h2>\n
\n We still think a moderate Overweight position in U.S. small caps is\n warranted due to the steeply discounted valuation relative to large caps.\n But we\u2019re cognizant that an unusually wide range of plausible economic\n outcomes in 2024 could impact small caps\u2019 earnings and revenue growth.\n That\u2019s why we think small caps will likely experience ups and downs this\n year, and investors should take a patient approach.\n <\/p>\n","protected":false},"excerpt":{"rendered":"
After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.<\/p>\n","protected":false},"author":15,"featured_media":11521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2024-01-18T14:39:47","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42],"tags":[394,393],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[205],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-11520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-small-cap-equities-2","tag-small-cap-equities","rbcwm_content_owner-pag","rbcwm_segment-business-owners-and-entrepreneurs","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.","rbcwm_post_author":"","rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\n
Can small-cap equities go the distance?<\/title>\n<meta name=\"description\" content=\"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rbcwealthmanagement.com\/en-asia\/insights\/can-small-cap-equities-go-the-distance\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can small-cap equities go the distance?\" \/>\n<meta property=\"og:description\" content=\"After a strong rally to end 2023, U.S. small caps gave back much of their gains. 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\n 600\n <\/th>\n
\n * Price-to-earnings (P\/E) and price-to-sales (P\/S) data are shown on a\n trailing basis.\n <\/p>\n
\n Source – RBC Wealth Management, S&P Dow Jones Indexes, FTSE Russell,\n iShares, Bloomberg, FactSet. Sector weightings are rounded. Sector\n weightings and index characteristics as of 12\/31\/23. Price ratios as of\n 1\/17\/24.\n <\/p>\n \n
But we think patience is needed<\/h2>\n \n - \n
Small caps tend to underperform during periods of low GDP\n growth.<\/strong\n >\n Currently, RBC Economics and the Bloomberg consensus forecast are\n calling for below-average U.S. GDP growth in 2024. Small-cap stocks\n typically underperform in such environments because they have a greater\n share of cyclical stocks, and earnings and revenue growth are harder to\n come by when the economy is sluggish. They tend to perform better when\n GDP growth is above trend, especially in the early stages of a growth\n cycle coming out of a recession.\n <\/li>\n - \n
If a hard landing materializes, they could trade back down to\n previous lows. <\/strong\n >The Russell 2000 was fully pricing in a recession at its low point last\n October, according to Bloomberg Intelligence. If the consensus forecast\n for slow growth this year is wrong and a recession begins, small-cap\n indexes could fall back to those lows.\n <\/li>\n <\/ul>\n It\u2019s a long way to the finish line<\/h2>\n
\n We still think a moderate Overweight position in U.S. small caps is\n warranted due to the steeply discounted valuation relative to large caps.\n But we\u2019re cognizant that an unusually wide range of plausible economic\n outcomes in 2024 could impact small caps\u2019 earnings and revenue growth.\n That\u2019s why we think small caps will likely experience ups and downs this\n year, and investors should take a patient approach.\n <\/p>\n","protected":false},"excerpt":{"rendered":"
After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.<\/p>\n","protected":false},"author":15,"featured_media":11521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2024-01-18T14:39:47","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42],"tags":[394,393],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[205],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-11520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-small-cap-equities-2","tag-small-cap-equities","rbcwm_content_owner-pag","rbcwm_segment-business-owners-and-entrepreneurs","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.","rbcwm_post_author":"","rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\n
Can small-cap equities go the distance?<\/title>\n<meta name=\"description\" content=\"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.rbcwealthmanagement.com\/en-asia\/insights\/can-small-cap-equities-go-the-distance\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Can small-cap equities go the distance?\" \/>\n<meta property=\"og:description\" content=\"After a strong rally to end 2023, U.S. small caps gave back much of their gains. 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It\u2019s a long way to the finish line<\/h2>\n
\n We still think a moderate Overweight position in U.S. small caps is\n warranted due to the steeply discounted valuation relative to large caps.\n But we\u2019re cognizant that an unusually wide range of plausible economic\n outcomes in 2024 could impact small caps\u2019 earnings and revenue growth.\n That\u2019s why we think small caps will likely experience ups and downs this\n year, and investors should take a patient approach.\n <\/p>\n","protected":false},"excerpt":{"rendered":"
After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.<\/p>\n","protected":false},"author":15,"featured_media":11521,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"rbcwm_post_date":"2024-01-18T14:39:47","editor_notices":[],"rbc_url_alias":"","rbcwm_featured_desktop_image_position":"","rbcwm_featured_mobile_image_position":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[42],"tags":[394,393],"rbcwm_content_owner":[390],"rbcwm_need":[],"rbcwm_segment":[205],"rbcwm_solution":[],"rbcwm_topic":[212],"rbcwm_channel":[],"rbcwm_format":[],"class_list":["post-11520","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-analysis","tag-small-cap-equities-2","tag-small-cap-equities","rbcwm_content_owner-pag","rbcwm_segment-business-owners-and-entrepreneurs","rbcwm_topic-global-insights"],"acf":{"rbcwm_subtitle":"After a strong rally to end 2023, U.S. small caps gave back much of their gains. We explore whether the asset class warrants patience from investors.","rbcwm_post_author":"","rbcwm_custom_breadcrumb_text":"","rbcwm_custom_breadcrumb_link_url":"","rbcwm_disclaimers":{"add_disclosures":["Yes"],"perspective_disclaimer":"","expandable":"","omit_from_pages":[],"disclaimer_footnote":""},"rbcwm_insight_cta_id":[8376],"rbcwm_pagination":{"next_link":"","next_link_text":"Next article","previous_link":"","previous_link_text":"Previous article"},"rbcwm_video_duration":"","article_time":"","rbcwm_enable_toc":false,"rbcwm_toc_selector":"h2"},"yoast_head":"\n