As investors race toward the finish for 2019 and look ahead to 2020, US large caps continue to outperform small caps while growth still leads value. FTSE Russell market experts share insight on whether these trends are likely to continue into the new year.
Alec Young, managing director, global markets research, FTSE Russell:
“This year has seen some very pronounced size and style performance trends as investors have favored large caps over small caps and growth over value. Large caps and growth stocks have benefited from macro tailwinds including fears of slowing global growth and endless US-China trade uncertainty, both of which have pushed investors towards higher quality blue chips with more dependable growth than their more economically sensitive, small cap, value counterparts. Growth worries have also driven interest rates to record lows, boosting large cap and growth indexes that have less exposure to financials, a sector whose margins are pressured by falling rates. In addition, large cap and growth indices also enjoy much greater exposure to technology, which is by far the best performing sector YTD.
But there may be reason to expect better performance from both small cap and value stocks in 2020. While global leading economic indicators are at their weakest since the financial crisis, they’re beginning to exceed low expectations and are at levels consistent with prior positive inflections. This is helping lift bond yields off their summer lows, which in turn is fueling financial sector leadership. Not surprisingly, small caps have begun to recently outperform while value has been far more competitive. If a US-China phase 1 trade deal proves forthcoming and a re-escalation in tensions can be avoided, it’s likely optimism on global growth will improve, helping more economically sensitive assets like value and small caps do better.”
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