Valuations continue to favor U.S. large-cap stocks over small-cap stocks

• Total returns for small-cap stocks have lagged large caps so far this year. However, due to their multi-year outperformance over large-cap stocks, valuations continue to favor large company stocks.
• Historically, when facing sluggish economic growth and accommodative interest rate policies, investors tend to favor large company stocks. Those with high dividends and proven track records of delivering profit growth through several business cycles are emphasized.
• So far this year, stock correlations have come down somewhat. Since the recovery, small-cap stocks have performed better in a “risk-on” environment rather than their performance being driven by fundamental earnings growth. As today’s slow-growth environment remains uncertain, and financial markets continue to be volatile, we favor large company stocks over small.

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Equities are affected by stock market fluctuations that occur in response to economic and business developments. Investments in small- and mid-capitalization companies involve greater risks and volatility than investments in larger, more established companies.

Indices are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.

The Standard & Poor’s (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization U.S. stocks. Index returns assume the reinvestment of all distributions unless otherwise indicated.

The S&P 600 SmallCap Index covers a broad range of smallcap stocks, is weighted according to market capitalization and covers about 3%–4% of the total market for equities in the United States.