Posted: 10 Nov 2020 02:11 PM PST
Pfizer’s announcement that its vaccine for covid-19 appears
to be 90% effective on Monday morning also gave new life to small-cap stocks,
many of which have struggled throughout the pandemic. The announcement has also
triggered an exodus from mega-cap tech stocks that had been the “go-to”
positions throughout most of the pandemic.
The chart above is based upon a similar chart from page 112
of the Stock Trader’s Almanac 2020. It shows the typical one-year
seasonal pattern of the ratio of the Russell 2000 to the Russell 1000 from July
through June (scale on right). Overlaid on top of this pattern is the
performance of this ratio in 2020 so far through today’s close (left scale).
When the ratio is declining, large-cap stocks are outperforming small cap
stocks. When the ratio is climbing, small caps are outperforming. In a typical
year, small-caps will lag until around late-September or early October and then
take off right around mid-December.
Covid-19 related shutdowns and unemployment had kept small
caps essentially sidelined this year. There were bouts of strength in late-July
to mid-August and a brief surge in mid-September and again in early October.
The recent surge higher could be an early start to the major move higher that
typically begins around mid-December.
For more on this historical seasonal pattern see pages
110 & 112 of the Stock Trader’s Almanac 2020 or on
the same pages in the 2021 edition. The 2021 edition is now available for free with a
subscription to our newsletter and is expected to ship soon.