One of the points we have been emphasizing to clients in recent months is that US small caps are looking increasingly less attractive compared to large caps.  Small caps have benefited from excess liquidity and a belief that as the US economy recovers, smaller companies, with their greater domestic focus, are the place to be.  Yet price and valuations are making it more and more difficult to justify the trade.

240314_MultiplesValuations for the Russell are stretched, and exceptionally so if one uses reported, as opposed to operating, earnings (top chart).  Relative valuations are also extended, ie the P/E of the Russell is very high compared to the P/E of the S&P by historical standards.

240314_VIX and RussellFinally, we expect to see higher equity volatility this year.  This would be consistent with US small caps underperforming large caps.