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Small-cap stocks can shine in a recession

Nov 23, 2023

Redacción Mapfre

Jonathan Boyar, director of Boyar Value Group and advisor to the MAPFRE AM US Forgotten Value Fund From a valuation standpoint, small-cap value shares are far and away the cheapest U.S. stocks. While large-cap growth shares (led by the Magnificent Seven group of tech stocks) are trading 36% above their 20-year average price/earnings multiple, JP Morgan reports that small-cap value is selling 14% below its 20-year average. The Russell 2000, a basket of smaller-cap companies, has been in a bear market since peaking in late 2021. It has since trailed the Russell 1000, which indexes larger-cap stocks, by about 20 full percentage points.

Many factors could help explain the short-term underperformance of small-cap shares, including rising interest rates, History suggests that leadership of the stock market could soon pass from large-caps to small-caps—especially if an economic slowdown lies ahead.

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Market has already adjusted expectations but remains questions about the war

Market, particularly the stock exchanges, initially reacted with declines at the start of the conflict between the United States and Iran, because investors are experiencing fear and uncertainty. After reaching a new equilibrium, future developments will depend on whether the conflict is prolonged or spreads geographically, according to Alberto Matellán, CEO of La Financière Responsable.

Iran War Sends Markets Off Course

RoadMap: Monthly market report prepared by the Mapfre AM team

What to Do When a Geopolitical Conflict Triggers Market Volatility

The recent crisis in the Middle East has brought back the familiar mix of nerves and uncertainty that typically accompanies conflicts of this kind: major indices have fallen, commodity prices—especially energy—have risen, and investors have rushed into safe-haven assets.