Remaining on the subject of the Russell 2000 and the small caps, here is an interesting view of the RUT iShares IWM vs. the SPY. True to their always bullish stance (what else are they going to say, ‘risk is high, sell your stocks’?) of the mainstream financial services industry, the spin lately has been ‘move out of small caps and into the relative strength of large caps’. What do they care as long as you hold stocks (i.e. risk… ‘ON’)?
Well, small caps under performed into the end of the secular bull market in 2000 and at the cyclical peak in 2007. IWM-SPY in fact, has declined right to the line it was at when the S&P 500 maxed out in 2007.
Please, this is not a bear call. Tune out everyone imploring you to be either bearish or bullish, while doing so on some form of auto-pilot or chronic robo bias. But this is a call that simply states that among several other market leadership/sponsorship indicators that have degraded recently, IWM-SPY is doing exactly what it did leading into the crash of 2008.
I used IWM-SPY for its perfect alignment to 2007. Note that the actual Russell to S&P 500 ratio is not quite there… yet.
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