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
TheStreet Open House

What's Ahead for Small-Cap Stocks?

From a sentiment perspective, it seems to us mega-cap stocks are also likely to be in favor. With economic growth slowing some globally, many seasoned investors are eyeing the end of this expansion and looking for the companies they believe best able to hold up when the going gets tough -- firms with strong brand names, strong balance sheets, globally diverse revenue streams and less volatile earnings growth.

These are hallmarks of the world's biggest firms. The bigger the company, the more quality investors perceive. Small-caps, by contrast, tend to be in favor earlier in an expansion, when investors are willing or even eager to make more cyclical bets.

Newly optimistic investors should give large stocks an additional boost. Many retail investors who've been in cash for much of this bull market are only now warming to stocks. Perhaps they're just now realizing the S&P 500 has more than doubled (on a total return basis) since the March 9, 2009, low, and they're finally comfortable wading back in.

But these investors -- naturally more skittish -- typically don't jump into smaller firms, where they perceive more risk. Instead, they go for the names they're most familiar with, the world's biggest companies. Or, they buy broad equity index funds or mutual funds, which tend to skew big. Either way, they tend to bid up the biggest firms whose market cap exceeds the market's weighted average: mega-caps.

So while small-caps have enjoyed a decent run in recent years, looking ahead we expect larger firms to outrun all other categories. We may see the odd counter-trend -- like markets overall, sectors, countries and styles never move in a straight line -- but in our view, over time and on average, mega-cap firms appear much better positioned to outperform in the period ahead than small firms.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

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 16,804.71 -238.19 -1.40%
S&P 500 1,946.16 -26.13 -1.32%
NASDAQ 4,422.0850 -71.3050 -1.59%

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