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Small-Cap EPS Growth Is Expected to Be 4x Faster than S&P 500


The expected year-on-year earnings per share growth for the S&P 600 Small-Cap Index

Like the famous Energizer Bunny, small-capitalization stocks keep on going versus their larger peers. Year to date, the S&P Small-Cap 600 Index is up 24.9% versus 14.7% and 5% for the S&P Mid-Cap 400 and S&P 500 indexes. Credit for that goes to stimulus spending and an earnings recovery.

The U.S. economy is now expected to grow 6.5% this year after passage of the $1.9 trillion stimulus package, according to the Organization for Economic Cooperation and Development1. That’s double the group’s 3.2% projection in December when the bill’s price tag was far from clear1. Faster growth is good news for small-caps which have more domestic exposure than other parts of the stock market. In addition, the rebound in manufacturing activity and the surge in commodities makes a big contribution to Small-Cap 600 performance given its larger sector weightings in those areas compared to the other indexes.

Where those trends come together is in earnings forecasts. Analysts now see small-cap profits growing by 35.8% year-on-year over the next 12 months, according to Cornerstone Macro2. That’s four-times faster than the expected growth in earnings for S&P 500. The small-cap earnings gusher not only reflects GDP, manufacturing and commodities, but also just how bad it was last year as the pandemic shut down the economy. At the nadir in May, analysts were forecasting profits to plunge 42.9% – a far more dire outlook than what was predicted for mid- and large-cap stocks2.

Horizon Investments continues to prefer smaller companies over larger ones (a topic we wrote about in December comparing Apple to the Russell 2000, and in January as small-caps blasted off relative to large-caps). In our view, smaller firms can still benefit from the brightening view of American economic growth, potential supply/demand imbalances for commodities and the back-up in bond yields which is corrosive to highly-valued, innovative companies.

After years of investors focusing their investments on a concentrated group of large companies, times may be changing. Capitalizing on that shift could present an opportunity for active managers versus a passive approach that may be tied to capitalization-weighted indexes. Should just a small fraction of money shift from mega-caps to small-caps it could have a meaningful impact. The Nasdaq 100’s market capitalization is $14.8 trillion versus $1.2 trillion for the S&P Small-Cap 600.


1 OECD Economic Outlook, Interim Report March 2021, March 9, 2021,
2 Cornerstone Macro earnings estimates dashboard as of March 16, 2021


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High & Mighty Stocks; Feeling Inflationary?; Game Stopped: Market Notes
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7.9 Trillion Reasons Not to Fight the Fed, ECB, BOJ or BOE
The Stock Market Is Strange, But Not Broken by GameStop: Market Notes
In Current Markets, Only Two Words Matter: Stimulus Spending


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


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