Predictions 2013 Small Caps, Mid Caps And Large Caps:
This year could be another good one for equities in a long run rally that may take several years to unfold after the financial sector was hit hard in 2007-2008. Most money managers underperformed the S&P 500 so it’s somewhat shocking that as the housing sector rebounded (but may or may not have bottomed), the financial sector was ignored for most of 2012. Some investors were placing huge bets against the market and specifically shorting the XLF which turned out to be a solid miss.
Getting an individual equity call wrong is one thing but missing a sector that hasn’t had such a hit since the Great Depression means more portfolio managers could potentially go back to the equities in general now that housing and the financial sector are strong again. This makes the call between small caps, mid caps and large caps a bit harder.
If 2011 was a ‘rebound’ year, investors may be looking to spread risk and take a less defensive posture which lead the Dow Jones to rise 6 percent last year. We tracked the DJIA closely in 2011 but this year we will also follow the Russell 2K, Nasdaq and individual ETFs to monitor the market pulse as we have in the past. 2012 may be a better year for small caps, technology and new issues coming to market via IPO. The increase in small cap stock performance will be hindered if the overall economy does not continue to improve. See last year’s prediction about small caps versus large caps here (2011).
This Year’s Prediction:
Last year, we didn’t even consider mid-cap stocks which shows our bias has somewhat changed. We still believe equities will outperform bonds this year but we think the return gap between small cap stocks, mid cap stocks and large cap stocks will be harder for money managers if emerging markets such as China and India also stabilize.
Last year the IWM exchange traded fund was up 12 percent while the S&P 500 was up 11 percent for the year but the NASDAQ which focuses on tech and growth companies was up 13 percent. It will be even harder this year to discern which market cap size will be the winner, but large cap stocks may gain interest if risk aversion decreases from last year even though junk bond activity is signaling a return to small cap risk. More risk aversion favors small cap companies but an increased investor base and return of the retail investor could be a boon for ‘old faithfuls’.