S&P 600, Russell 2000 Split Shows Quality Counts More Than Ever

By Alex Semenova, Bloomberg Markets Live reporter and strategist

Even as large-cap stocks have marched to record highs, a broad-based rally in small caps remains elusive, with the group struggling to gain traction despite the interest-rate cutting cycle by the Federal Reserve that’s already underway.

But a disconnect in the recovery between two benchmarks that track companies in the size segment from their previous peaks shows traders aren’t shunning the cohort altogether, and have been opting for small-cap names with sturdier balance sheets.
Even as the group broadly has struggled, investors have shown a preference for the S&P Small Cap 600 Index, which unlike the Russell 2000 Index, has a quality bias by screening for company profitability. The former gauge is back to trading near its 2021 record, while the latter is about 10% below its peak despite a decent run this year, an analysis by Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper points out.