This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Small- and Mid-Caps Lead Out of Recessions

Stocks in this article: MDYIJRSPYXLP

NEW YORK ( The FRED Report ) -- At the FRED Report ( www.theFREDreport.com), we noted a significant milestone for equities last week . The S&P Mid-Cap Index closed at all time highs. Mid-Cap leadership is something we have been writing about since 2009, and we highlighted this in our January 2010 research piece, as well as other letters throughout the year. For example, interested readers should look at our July 22, 2010 article on Small- and Mid-Cap names here at TheStreet.

We show monthly charts of the MDY (SPDR Mid-cap Series Trust), the IJR (iShares Small Cap 600) and the SPY (SPDR S&P 500 Trust) below. Readers should note the performance of these ETFs since 2000.

Notice how, after the 2000-2002 recession/decline, Small- and Mid-Cap stocks also outperformed. For those who suggest the SPY has a stronger Financial Sector weighting, we show a monthly chart of the good old XMI (Major Markets Index) -- 20 big blue-chip names, equally weighted. This eliminates financial "weighting" issues, and enables us to zero in on mega caps vs. smaller capitalization issues. The XMI outperformed the SPY, but still lagged Mid- and Small-Cap names. This has happened after other recessions -- interested readers can email us for copies of our report on this phenomenon.

Here at the FRED Report, we believe the reason for this is that Mid- and Small-Cap indices are more in tune with the U.S. economy rather than multinational firms. Historically, the U.S. economy has led the way out of recessions and investors endeavoring to take advantage of this have bought these issues first.

We could see some change in this pattern, however, as U.S. stocks look to outperform international markets in 2011. Foreign money has a tendency to enter the U.S. via Large Cap names first, and then gradually filter down into Mid-Cap names. One reason for this is that portfolio managers in other countries tend to buy "household name" stocks first, as their clients are more comfortable with these U.S. stocks. These stocks are often in Consumer Staples (XLP) and similar sectors. Should these stocks start to outperform, we will devote more attention to them later in 2011.

Fred Meissner is founder and publisher of The Fred Report. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report. A detailed bio is here:Fred Meissner.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs