What Happens When Large Caps Whip Small Caps?

The SPX was up double digits, while the RUT was down double digits year-over-year

Senior Quantitative Analyst
Mar 3, 2022 at 8:00 AM
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Stocks tend to move together with small caps making more money than large caps in a bull market. On the flip side, large caps tend to lose less than small caps during a bear market. During the past year, however, the large caps and small caps have moved in completely opposite directions.

More recently, the large-cap S&P 500 Index (SPX) was up double digits year-over-year, while the small-cap Russell 2000 Index (RUT) was down double digits. We have seen this phenomenon only one other time. This week, I’m diving into what happened after the large-cap index handily outperformed the small-cap index.

A Rare Occurrence

The chart below shows the SPX alongside the RUT over the past year. The yellow dots mark the dates when the year-over-year return was 10% positive or more for the SPX, and 10% negative for the RUT. The first date this occurred was Feb. 4, and the most recent date was Feb 22.


As mentioned earlier, the SPX gaining double-digits over 52 weeks while the RUT was down double-digits is rare. The chart below shows those instances from mid-1998 until mid-1999. The bad news is that these signals are not too far away from the peak of the tech-boom. On the other hand, an investor who sold at the first signal in August of 1998 would have missed out on significant upside. The SPX gained over 50%, and the RUT gained over 65% before the tech-bust.  

SPX_RUT Ratio 2


Here is another way to look at this. It’s simply the ratio of the SPX divided by the RUT. The ratio recently crossed 2.25 for only the second time in the last decade. The chart below shows this ratio going back to 1980.

SPX_RUT Ratio 3

The following table shows the individual dates in which the ratio moved above 2.25 (it had to be the first occurrence in the past six months). It also shows the three- and six-month returns for the SPX and RUT.

The returns look impressive at first glance. For the SPX, it was higher a year later after all eight occurrences. For the RUT, it was positive a year later in seven of eight years. Also notable is that the RUT outperformed the SPX in six of these eight years.

Index Returns

This next table summarizes the SPX returns after the SPX/RUT ratio crosses above 2.25. I also included the one- and six-month returns. The second table shows typical returns for the index since 1979. The average return and percent positive returns after these signals outperformed the usual returns for the index.

Index Returns 2

Finally, I summarized the data in the same way for the RUT. Going by average return, the RUT has outperformed the SPX after these occurrences.

Index Returns 3


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