Small caps crush everything else coming out of recessions.
All of the factors that hurt them when times are tough go into reverse and turbocharge them higher when the script flips. Financing costs fall, interest rates moderate and economic contraction turns into expansion again.
Bear markets “reset the clock,” so to speak, bringing valuations down to levels that support a prolonged bull market. The carnage of this past year has knocked the forward price-to-earnings ratio of the Russell 2000 down to just 13. That’s the lowest it’s been since the 2008 to 2009 bear market.
The historical precedents are good as well.
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