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.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
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.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
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.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV