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Yesterday saw a 1.45% rise in the value of the S&P 500 Index and a 1.33% rise in the Dow.  The closely followed indexes have been strong in November, rising 5.53% and 5.09% respectively.  However, they are being boosted by a weird trend – the outperformance of large cap stocks.

The Nifty Fifty

As many articles have pointed out, the rise in the value of large cap stocks is generally covering up the weaker performance of the smaller companies.  For some background, the ‘Nifty Fifty” refers to a group of 50 stocks on the NYSE which reached fad status in the 60s and 70s.  The companies were thought to be so strong (and large), that an investment in the companies was guaranteed to be a good bet.  From that list, you have some of the largest companies even today, like IBM and American Express.  You also have some companies that haven’t fared as well- like Eastman Kodak.

Have The Nifty Fifty Returned? (wilhei55)

Has investor sentiment created another Nifty Fifty like situation?  Volatility in the stock markets and low yields in savings and money market accounts certainly would drive some people to invest in the stock market.  However, if that money is relatively conservative, it would tend to prefer larger capitalization stocks- like American Express and IBM.

Following the Small Caps

Also lending credence to the theory- small capitalization stocks outperformed in the beginning of the year.  From March 9th to August 31st, stock deciles rose exactly in inverse order of their capitalization size.  A return to normalcy in the market perhaps is leading investors away from these growth plays to established value plays.  If that is true, it’s more encouraging than a risk-scared investor class avoiding everything small.  It’s a return to normalcy.

What do you think this means?  Let me know in the comments.

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