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Small-Cap Banking Stocks Beat Large-Cap Stocks: End of Sell-Off?


Mar. 8 2016, Updated 12:11 p.m. ET

Market cap analysis

Large-cap companies, which have market capitalizations above $10 billion, make up 87.3% of the Financial Select Sector SPDR Fund (XLF)(IYF). These stocks have fallen 5.3% in the past year, but they rose 4% during the trailing-five-day period ending March 4. In comparison, the broad Market-based S&P 500 ETF (SPY) rose 2.7% during the week. Small-cap and mid-cap companies, which have market capitalizations under $2 billion and $10 billion, respectively, outperformed large-cap stocks last week and rose 7.9%. As markets gained last week, the sense was that the global sell-off has eased for now and investors may be turning bullish.

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However, over the past year, small-cap stocks have underperformed large-cap stocks and plunged 18.3%. The underperformance of small-cap stocks relative to large-cap stocks during the year hints at vulnerability in the broader Market. Investors may be choosing to stay with large-cap stocks as they are safer bets amid uncertain global conditions.

Market cap analysis of subgroups

Large-cap banking stocks make up 47% of XLF. These stocks have fallen 12% in the last year, while small-cap banking stocks have fallen 15.3%. In comparison, large-cap diversified financial services stocks have fallen 11.8% in the last year, while small-cap diversified financial services stocks have fallen a whopping 30.6%.

Last week, large-cap banks returned 5.7% while small-cap banks rose 9.2%. In comparison, large-cap and small-cap diversified financial services stocks rose 4% and 9.4%, respectively. Genworth Financial (GNW), Legg Mason (LM), and Affiliated Managers Group (AMG) led the gains in XLF last week. These stocks rose 32.1%, 13.4%, and 11.9%, respectively.


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