Monday, May 11, 2015

April Is the Cruelest Month for Small Caps

April turned out to be a fairly decent  month for the S&P 500. The large-cap index rose by just 0.85 percent, which may not sound like a lot, but if we could keep up that pace every month, we'd be looking at a 10 percent annual growth rate.

But it was a bad month for small-cap stocks, as measured by the benchmark Russell 2000, which fell by 2.6 percent. This was the second consecutive miserable April for small caps; last year at this time, the Russell 2000 dropped by 3.9 percent.

Coincidence? Maybe, but there is a possible explanation.  The first quarter of 2014, like this year's first quarter, was very disappointing from a GDP standpoint, and there's a theory that the strength of the economy has a disproportionate effect on smaller stocks.

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