Small-Cap Financial Stocks Outperform in a Bullish Environment



Performance of small caps versus large caps

Larger-cap stocks above $10 billion make up 87.26% of the Financial Select Sector SPDR Fund (XLF). These stocks have risen by 0.86% YTD (year-to-date) but have lost 0.93% in the last five trading sessions ended on July 24.

In comparison, smaller-capped stocks—those under $10 billion market capitalization—have risen by 1.46% YTD and have fallen by 0.86% in the past week. In part, this performance has been fueled by market sentiment based on strong domestic economic conditions in which smaller, nimbler companies can take advantage of market opportunities.

Small-cap stocks have been trading at a one-year forward price-to-earnings ratio of 23.21x, while large-cap stocks have a price-to-earnings ratio of 20.78x.

On average, small-cap stocks are trading at a discount of 7.26% to analysts’ price estimates, while large-cap stocks are at 9.11% discount to their target price estimates.

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Market-cap analysis of subgroups

Large-cap banking stocks make up 46.84% of the XLF portfolio. These stocks fell by 1.16% last week, while small-cap stocks gained 2.10%. And while, YTD, large-cap banking stocks within the ETF have risen by 4.58%, small-cap banking stocks have risen by 8.02%. Clearly, small-cap stocks are outperformers in a bull market.

Large-cap diversified financial stocks make up 8.92% of the XLF portfolio. They’ve fallen by 4.01% YTD. In comparison, small-cap diversified financials stocks fell by 2.51% YTD and 3.12% in the last week. Year-to-date, the best performers in this sub-group are E*Trade Financial (ETFC) and Schwab (Charles) Group (SCHW). These two stocks are up 17.58% and 15.30%, respectively. Meanwhile, Navient (NAVI) and American Express (AXP) were the worst performers. They fell by 24.94% and 18.42%, respectively, in the same period.


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