In Marvel movies, it’s common for one superhero to be bigger than an entire army. Turns out, that’s also possible in real life in the equity market.
Case in point: The market capitalization of a single company—Apple Inc.—recently surpassed that of the Russell 2000 index of small-company shares. The chart shows that Apple’s roughly $2.7 trillion market cap is now around $100 billion higher than the combined value of all 2,000 stocks that comprise the index.
Apple’s valuation briefly exceeded the Russell 2000’s once before, during the first year of the pandemic, when investors sought safety in shares of the largest companies. These days, Apple’s stock has climbed on better-than-expected financial results and a general shift toward the mega-cap tech sector—while small-company stocks have sputtered in the wake of regional bank failures, concerns about access to much-needed credit, and recession fears.
Our current positioning mainly reflects our views on these recent trends, emphasizing growth and quality and underweighting more cyclical market segments. That said, the rapid pace of Apple’s rise (and of mega-cap tech overall) gives us pause. We believe the situation could suggest that small-company stocks may present an undervalued buying opportunity.
The upshot: Small-cap stocks could snap back if we get good news, such as resolving the debt ceiling issue.
This commentary is written by Horizon Investments’ asset management team.
Past performance is not indicative of future results.
The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. You cannot invest directly in an index.
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