Market Extract: Jobs Miss, Fed Tapering, Small Cap Equity Trends

What’s going on in the market today, and how might your business, your portfolios, and your clients be impacted? The Market Extract aims to provide a condensed, clear, and highly relevant view, with insights from Advanced Asset Management Advisors’ investment committee to you. 

Equity markets posted small gains last week as Friday’s market recovered earlier losses. Bond prices were firm with the ten-year Treasury yields dropping 2 bps for the week, accentuated with Friday’s drop of 6 bps. Job gains for May fell below expectations – pushing concerns of Fed tapering further down the road. And Small Cap out-performed Large Cap by 25 basis points.

Let’s take a moment to review recent Small Cap equity market trends. We will look back to 9/21/2018 – our favorite time series benchmark date.

In the chart below, the black bars indicate the relative performance of Small Cap stocks vs. Large Cap stocks. Notice the bars on the left side of the chart (late 2018 through 2019). The relative weekly percent changes generally fit within a +/- 2% range. Now let’s look at the right side of the chart. The weekly percentage changes are notably higher, generally +/- 4%.

The extremes of Small Cap relative performance have doubled while the relative price index remains 11% behind our benchmark date level. Near term, the relative index is 8% below its recent high (3/12/21). What does this indicate? These are all relative numbers, but the takeaway is this—with increased volatility and lagging relative performance, now is not a good time to make a dramatic overweight towards Small Caps.

Chart showing Small Cap relative performance trends from September 2018 through March 2021

The information and opinions in this report have been prepared by the investment staff of Advanced Asset Management Advisors (AAMA). This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but AAMA makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute AAMA’s judgment and are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as a recommendation to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations.

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