January Could Make History With Small-Caps Leaving Large-Caps in the Dust

January is starting out where 2020 left off: small-caps are leaving large-caps in the dust. So far, the Russell 2000 Index is outpacing the S&P 500 Index by 5.4%. If the month stopped here, that would be the second-best outperformance for the entire month of January in the past 20 years, and it easily exceeds the average relative return.

Just because a trend starts the year strong doesn’t mean it will carry through. January 2006 was the best relative small-cap performance in the last 20 years. But that price action eroded throughout the year, ending with small-caps only 3% ahead of large-caps. And in two of the three best years for small-cap relative outperformance over the last two decades, it was large-caps that did better in January. As every investment disclosure always points out, past performance is no guarantee of future returns. 

A disciplined, active-management process may be able to successfully navigate a trend like this as we start on the road back to normal life. Horizon Investments has been growing increasingly positive on smaller-cap stocks for months. After this huge run, what are we watching to remain positive? In short, earnings. Small-cap profits need to meaningfully inflect higher in the back half of 2021. The dual shocks, from the trade war in 2019 and the Covid shutdowns in 2020, have had an outsized impact on small-cap earnings. Now that business leaders are getting some clarity around a return to normal, a recovery in earnings will be key to sustaining the narrative of small-over-large for the rest of this year.


Further reading:

Russell 2000 Versus Apple Trend Reversal Has More Room to Run
In Current Markets, Only Two Words Matter: Stimulus Spending
Top 2021 Themes: Horizon Investments’ New Year Special Report
PIIGS Fly and Other Stories of Investors Reaching for Risky Bets
Bond Market Bears Growling as 10-Yr Yield Tops 1%
It’s Getting Harder to Fund Retirement Using Bonds
7.9 Trillion Reasons Not to Fight the Fed, ECB, BOJ or BOE


This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, please reach out to Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.


To download a copy of this commentary, click the button below.

Download The Big Number

To discuss how we can empower you please contact us at 866.371.2399 ext. 202 or info@horizoninvestments.com.

Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This report does not attempt to examine all the facts and circumstances that may be relevant to any company, industry or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of clients of Horizon Investments, LLC (“Horizon”). This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security in question is suitable for their particular circumstances and, if necessary, seek professional advice. Investors may realize losses on any investments. Index information is intended to be indicative of broad market conditions. The performance of an unmanaged index is not indicative of the performance of any particular investment. It is not possible to invest directly in an index.
Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. This commentary is based on public information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. Opinions expressed herein are our opinions as of the date of this document. We do not intend to and will not endeavor to update the information discussed in this document. No part of this document may be (i) copied, photocopied, or duplicated in any form by any means or (ii) redistributed without Horizon’s prior written consent.
Other disclosure information is available at www.horizoninvestments.com.
Horizon Investments and the Horizon H are registered trademarks of Horizon Investments, LLC
©2021 Horizon Investments LLC
You are now leaving this website to go to HorizonMutualFunds.com