Amid the choppy grind higher in US equities one key aspect for investors to look for is the prospect of the long-run relative bull market in small caps to end. If we look at the straight price ratio between the S&P 500 and the Russell 2000 it is now close to an all-time low (only piped by the trough in 1984).
(click on charts for better viewing)
The investment implications are clear in our view. Given the market appears set to grind higher we would rather be long large caps than small caps. Lucrative long-term opportunities are now much more likely to appear in large cap space with the entire small cap space now effectively priced for QE ‘infinity’. Long-term real money managers should keep this in mind too when starting to build new positions after a potential market pull-back.