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Small-cap stocks—companies with a market cap of under $2 billion—don’t usually steal the spotlight, but November turned them into the main event.
The Russell 2000 didn’t just outperform mid and large caps; it dominated, posting a 3.9% gain compared to 2.2% for the S&P MidCap 400 and 1.5% for the S&P 500.
The Recent Surge in Small Caps
If you’re wondering why small caps took off, it’s simple: they thrive when people think the economy is on the upswing. Sectors like industrials and financials—where small caps are overrepresented—did a lot of heavy lifting in November.
Why Small Caps Are Up
Here’s where small caps have an advantage: about 90% of their revenue comes from the U.S., compared to just 60% for large caps (S&P 500). That means any tax cuts or deregulation in the U.S. hit their bottom line a lot harder—in a good way.
This has been a surging theme with the Trump administration, where policies like tax cuts and deregulation provide a strong boost to small caps, which are more domestically focused.
Volatility: A Double-Edged Sword
Now, let’s talk about the downside. Small caps aren’t just leading in gains—they’re also leading in volatility. Their 30-day volatility sits at 23%, compared to 16% for mid caps and 12% for large caps.
What does that mean? Small caps can swing big in either direction. It’s great when they’re up, but it’s rough when they’re not.
Small Caps: Exciting but Risky
Small caps are a wild card. They can give you big wins, but they’re also the first to fall when things go south. Inflation, rising costs, or higher interest rates could hit them harder than mid or large caps.
A Few Key Takeaways
- Small caps surged 3.9% in November, outperforming mid caps (+2.2%) and large caps (+1.5%).
- 90% of small caps' revenue comes from U.S. markets, making them big winners when tax cuts or fiscal policies favor domestic growth.
- Small caps bring higher volatility—23% 30-day volatility compared to 16% for mid caps and 12% for large caps—so expect big swings, both ways.