Gavekal Capital: To Say That Small Caps Are Under Performing Would Be A Generous Statement

Thursday, May 8, 2014

To Say That Small Caps Are Under Performing Would Be A Generous Statement

Despite (or maybe because of?) "pockets where we could potentially see misvaluations in smaller-cap stocks", the small caps have been taking it on the chin of late. Indeed when we break down the S&P 1500 into it's large, mid and small cap components there seems to be an obvious bias toward selling the "smaller cap stocks". The way we are gauging selling pressure in this instance is to measure the percent of stocks in each index that are either in correction territory (down at least 10% from the 1-year high) or in an outright bear market (down at least 20% from the 1-year high). The results (below) pretty much speak for themselves as the link between cap size and selling pressure is unmistakable. We wonder when or if the selling pressure in "smaller cap stocks" will feed into "larger cap stocks" and whether those "misvaluations" are as confined as the Chairwomen says they are.

Large Caps
Percent in Correction Territory = 21.4%
Percent in Bear Market = 8.6%
Percent in Correction or Bear Market = 29.9%

Mid Caps
Percent in Correction Territory = 35.0%
Percent in Bear Market = 15.0%
Percent in Correction or Bear Market = 50.0%

Small Caps
Percent in Correction Territory = 36.2%
Percent in Bear Market = 34.2%
Percent in Correction or Bear Market = 70.3%

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