Prior instances of large dispersion between large caps and small caps and market directionality

We analyzed quarterly data going back to 1978, looking at the dispersion of returns between the Russell 1000 and Russell 2000, and what that meant for S&P500 performance for that quarter and the following quarter (3-month and 6-month performance), and found the hit rates and average return to both be higher as the dispersion grew.

• Including the 19 days in this quarter, 184 quarters were used for the analysis.

• 69% of the time the S&P500 was up for the quarter and 72% of the S&P500 was up measuring two quarters out.

• If the quarter ended on Friday, the Russell 2000 outperformance over the Russell 1000 (disparity) would be the 23rd out of 184 largest outperforming quarter.

• The average one quarter return of the S&P500 for the periods where the disparity was lower was 2.21% and the average two quarter return where the disparity was higher was 4.71%.

• The average one quarter return of the S&P500 for periods where the disparity was lower was 3.95% and the average two quarter return where  the disparity was higher was 8.97%.

• 81% of the time when the disparity was higher the S&P500 was positive one quarter out, versus 67% of the time when it was lower. 

As with all historical analysis, investors should be careful to extrapolate circumstances in the past as any form of certainty in the future. Circumstances in the future will frequently be different than the past, which is why one of our constant mantras is that to look at broad array of data and have our opinion be shaped by a mosaic of information, not just one relationship, and even with that as the regulators like us to say - Past performance is not a guarantee of future results.