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Posted by on Feb 1, 2017 in Cornerstone Investment Partners, Small Cap Market Review

Weekly Small Cap Market Review: January 23 – January 27

Weekly Small Cap Market Review: January 23 – January 27

By Mark Spatt, CFA, Investment Analyst at Cornerstone Investment Partners, sub-advisor of the AdvisorShares Cornerstone Small Cap ETF (NYSE Arca: SCAP)

Last week was quite busy, but I expect that we will rarely get the opportunity to say something otherwise this year. President Trump had a very active first week in office, pulling out of the Trans-Pacific Partnership (“TPP”), calling for $1 trillion of spending on infrastructure projects, pushing for a border wall with Mexico, and suggesting he could cut corporate regulations by at least 75%. Along with actions taken just before and after the inauguration to repeal key elements of the Affordable Care Act, the President has acted quickly, decisively, and sometimes without deep congressional support, on a number of key campaign promises.

The small-cap market, as defined by the Russell 2000 Index, was up 1.4% overall for the week, as the President’s actions gave increasing confidence to the market that expected growth-oriented economic policies will be implemented. Within the Index, Materials (+3.5%), Industrials (+2.3%), and Financials (+2.0%) were relative outperformers, as the “Trump trade” ran. Safety stocks like Consumer Staples (-0.9%) and Real Estate (-0.1%) were relatively weaker. Small caps (Russell 2000) outperformed large caps (Russell 1000) by around 35bps, and among small caps, Value was slightly better, with the Russell 2000 Value Index beating the Russell 2000 Growth Index by around 25bps.

Earnings season has just begun, but most small cap companies in the Russell 2000 Index will not report for a few weeks. Among the 12% or so that have reported, revenue estimates appeared to be about in line with actual reports, but EPS targets have been beaten by over 70% of companies reporting.

In domestic-oriented small-cap, it appears that the market continues to move on the political winds. But in the short-run, investment performance is most often directly linked to fundamental performance, and earnings season will help us understand how companies are reacting to any potential changes. In the long run, we continue to wait to see what these actions will have in store.

The information, statements, views, and opinions included in this publication are based on sources (both internal and external sources) considered to be reliable, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness. Such information, statements, views and opinions are expressed as of the date of publication, are subject to change without further notice and do not constitute a solicitation for the purchase or sale of any investment referenced in the publication.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers.  AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.