Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from global events. As well, the prices of SMID stocks generally are lower than the prices of large-caps. As well, there are long stretches in the record books when SMID stocks have outperformed large-caps. That said, SMID stocks can be risky. The standard deviation for monthly returns was 5.7% for SMID stocks over a 2003-2021 test period, versus 4.3% for large-caps. Still, despite the risks, diversified investors look to have exposure to small- and mid-caps based on the long-term performance record.

Confounding the Experts

In 2023, the S&P 500 climbed almost 24%, skewed heavily by a handful of tech and consumer stocks that recovered from the pandemic. The top-10 stocks in the Argus Universe advanced, on average, 180%, while the top-20 rose 140%. The average stock rose 17%, and the median stock advanced 7%. The average BUY-rated stock increased 20%, while the average HOLD-rated stock gained 8%. Will investors continue to favor growth in 2024? Will small-caps reverse their recent thrust as the risk of recession puts a premium on clean balance sheets? Investors seeking value are encouraged to focus on dividends and yields in the 3%-4% range. As for small-caps and international stocks, valuations remain depressed -- and these group looks to offer value into 2024 as market breadth likely widens. Below are the top-10 performers from the Argus Universe last year, with representatives in six of the 11 major sectors, as well as the bottom-five performers.

Monday Tee Up: Nvidia

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $20 billion to define a SMID stock.

Stocks finished near breakeven on Thursday after giving up most of their early gains, as investors weighed new inflation and employment data. The core consumer price index, excluding food and energy prices, rose 4.7% from the prior year in July, down from 4.8% in June. The reading was the lowest since October 2021 and raised the likelihood that the Fed would hold interest rates steady at its September meeting. However, San Francisco Fed President Mary Daly said that the CPI data, though positive, showed that the Fed still had 'more work to do' in bringing down inflation. On the employment front, first-time claims for state unemployment benefits rose by 21,000 to a seasonally adjusted 248,000 for the week ended August 5, above the Reuters consensus forecast of 230,000. Continuing claims fell by 8,000 to 1.684 million. The Dow rose 0.15%, the S&P 0.03%, and the Nasdaq 0.12%. Crude oil fell nearly 2% to $83 per barrel, while gold fell $5 to $1946 per ounce.

Stocks started a new bull market in 2Q23, as the S&P 500 climbed 20% above bear-market lows from last October. For the quarter, the index climbed about 8%. Performance was narrow in 2Q, led by last year's laggard sectors, including Communication Services, Consumer Discretionary, and Technology. Last year's top-performing sector, Energy, and the Utility sector, were the worst performers in 2Q23. The average stock in the diversified Argus Universe of Coverage rose 4% in the quarter, and the median stock advanced 2%. The average Argus BUY-rated stock rose 5.7%, while the average HOLD-rated stock gained 1.2%. We recently raised our sector rating on Consumer Discretionary to Over-Weight, as the employment environment is strong. We also look for a pick-up in EPS growth in Communication Services and Technology, and expect these groups to pace broad market performance. Below are the top 10 performers from the Argus Universe in 2Q23, many from Technology and Communication Services. After that, we list the bottom five performers.

Monday Tee Up: Here Comes Retail

Small- and mid-cap stocks (SMID) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation or other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps. SMID stocks can be risky, but diversified investors look to have exposure to small- and mid-caps based on the long-term performance record. We estimate that 12%-15% of the U.S. stock market's capitalization is comprised of SMID stocks. For our purposes, we use a threshold of $15 billion to define a SMID stock.

Small- and mid-cap stocks (SMID stocks) have underperformed large-caps over the past 12 months, but may be in a better position to generate market-beating returns going forward. For one thing, SMID companies tend to focus on domestic markets, so their businesses could be less disrupted by the fallout from the Russian invasion of Ukraine, high European inflation, and other geopolitical developments. As well, the prices of SMID stocks generally are lower than the prices of large-caps, with the P/E ratio on the Russell 2000 Small-Cap Index at 11 compared to a trailing P/E of 20 for the S&P 500. Finally, the long-term record has favored SMID stocks over large-caps. From 2003-2022, the Russell 2000 Index climbed 470%, compared to an advance of 444% for the S&P 500 index. Here are the stocks with market caps below $15 billion that are on the Argus BUY list and have been added to our Mid-Cap Theme Model Portfolio.

With a rally off the October bottom, the S&P 500 (SPX) at its February 2 high had retraced (using intraday prices) slightly more than 50% of the bear market. The NYSE Composite, the Dow Jones Industrials, (DJIA) and the S&P MidCap 400 (MDY) all have recaptured over 61.8% of their respective bear markets. At its high on February 2, the Nasdaq 100 (QQQ) had seen a 38.2% retracement, while the Nasdaq Composite hasn't quite reached that minimum takeback.

Monday Tee Up: Big Retail Earnings

Stocks fell on Friday morning after a better than expected July employment report raised prospects for continued aggressive Fed rate hikes. The Labor Department said that the U.S. economy added 528,000 nonfarm payroll jobs last month, up from a revised 398,000 in June and well above the consensus forecast of 250,000. The official unemployment rate ticked down to 3.5%, below the consensus of 3.6%. Wage growth was higher than expected. Average hourly earnings rose 0.5% from the prior month and 5.2% from the prior year, both above consensus estimates. The Dow fell 0.2%, the S&P 0.6%, and the Nasdaq 1.1%. Crude oil rose more than 2% to $90.50 per barrel, while gold fell $15 to $1792 per ounce.

Stocks rallied in the trading week ended August 21 on strong economic data, capped by a blowout report on existing-home sales for July. PMI reports from IHS Markit also showed strength in both manufacturing and non-manufacturing. Stocks moved to new highs even though Congress failed to act on a second round of stimulus, widely seen as needed for those who lost supplemental federal unemployment benefits late in July.

The S&P 500 and Nasdaq Composite are capitalization-weighted, while the DJIA is price-weighted. That did not matter much for years. The Dow is supposed to represent the U.S.A.'s mightiest companies. But the DJIA can no longer accommodate stocks that not only carry massive market caps, but also trade at very high stock prices. GOOG and AMZN, among others, lift the Nasdaq, while the DJIA is left behind with its roster of old-line names. Situated between the high-flying Nasdaq and the stodgy Dow, the S&P 500 is a better representation of the U.S. stock market.

U.S. stocks rose on Wednesday morning amid easing coronavirus fears and a second day of congressional testimony from Fed Chair Jerome Powell. Industries doing well today include healthcare providers and services, energy equipment and services, and automobiles. Industries trading lower today include construction materials and leisure products. The VIX is down 0.73 to 14.45. The Dow rose 0.7%, the S&P 0.6%, and the Nasdaq 0.7%. Crude oil rose more than 2% to about $51 per barrel, while gold rose slightly to $1572 per ounce.

Stocks rallied in the trading week ended August 21 on strong economic data, capped by a blowout report on existing-home sales for July. PMI reports from IHS Markit also showed strength in both manufacturing and non-manufacturing. Stocks moved to new highs even though Congress failed to act on a second round of stimulus, widely seen as needed for those who lost supplemental federal unemployment benefits late in July.

The S&P 500 and Nasdaq Composite are capitalization-weighted, while the DJIA is price-weighted. That did not matter much for years. The Dow is supposed to represent the U.S.A.'s mightiest companies. But the DJIA can no longer accommodate stocks that not only carry massive market caps, but also trade at very high stock prices. GOOG and AMZN, among others, lift the Nasdaq, while the DJIA is left behind with its roster of old-line names. Situated between the high-flying Nasdaq and the stodgy Dow, the S&P 500 is a better representation of the U.S. stock market.

U.S. stocks rose on Wednesday morning amid easing coronavirus fears and a second day of congressional testimony from Fed Chair Jerome Powell. Industries doing well today include healthcare providers and services, energy equipment and services, and automobiles. Industries trading lower today include construction materials and leisure products. The VIX is down 0.73 to 14.45. The Dow rose 0.7%, the S&P 0.6%, and the Nasdaq 0.7%. Crude oil rose more than 2% to about $51 per barrel, while gold rose slightly to $1572 per ounce.

The major indices are down at midday on Monday amid skepticism about the progress of a trade deal between the United States and China. Meanwhile, Saudi Aramco announced a timetable for its IPO, with pricing occurring over the next four weeks ahead of a mid-December debut on Saudi Arabia's Tadawul exchange. Industries doing well today include Independent Power & Renewable Electricity Providers, Media, and Household Durables. Industries showing weakness include Energy Equipment & Services, Communications Equipment, and Health Care Technology. The VIX is up 1.02 to 13.09 after the previous close of 12.07. The Dow, the S&P, and the Nasdaq were all down about 0.3%. Crude oil fell slightly to $57 per barrel, while gold lost $7 to trade near $1456 per ounce.

Stocks rallied on Friday morning as U.S.-China trade talks continue. In other news, the Federal Reserve announced that it is extending its purchase of T-bills through January 2020. The Bureau of Labor Statistics reported that U.S. import prices increased 0.2% in September following a 0.2% decline in August. U.S. export prices declined 0.2% in September on both agricultural and nonagricultural exports, following a 0.6% increase in August. Preliminary consumer sentiment for October rose to 96. The Dow rose 1.7%, the S&P 1.7%, and the Nasdaq 1.9%. Crude oil traded near $54 per barrel, while gold fell to $1484 per ounce.

Stocks recovered from early losses on Thursday afternoon after comments from New York Fed President John Williams pointed strongly to an interest rate cut at the end of the month. The advance was led by the Consumer Staples, Financial, and Technology sectors, while Communication Services and Consumer Discretionary stocks traded lower. On the employment front, the Labor Department said that first-time unemployment benefit claims rose by 8,000 to a seasonally adjusted 216,000 for the week ended July 13, in line with the Reuters consensus forecast. The Dow rose 0.01%, the S&P 0.36%, and the Nasdaq 0.27%. Crude oil fell 2% to about $55.50 per barrel, while gold rose $23 to $1446 per ounce.

Stocks had a favorable backdrop Thursday following strong first-quarter results from Industrial companies and a report showing a rebound in retail spending. The Dow Jones Industrial Average was up 0.4% and the S&P 500 added 0.2%, while the Nasdaq Composite was flat. As the earnings season unfolded, stocks came into Thursday mixed, with the Dow finishing the holiday-shortened trading week up 0.6%, while both the Nasdaq and S&P 500 were flat. Year-to-date gains stand at 13.9% for the Dow, 20.5% for the Nasdaq, and 15.9% for the S&P 500.

Stocks rallied on Friday, aided by optimism about a resolution to the partial U.S. government shutdown, which ultimately occurred over the weekend. The Dow Jones Industrial Average climbed 0.8%, while the S&P 500 added 0.9% and the Nasdaq Composite rose 1.3%. Fourth-quarter earnings otherwise dominated the news flow last week, and for week equities finished near the flat line, with a 0.1% rise for both the Dow and Nasdaq, but a 0.2% loss for the S&P 500. Year- to-date gains now stand at 8.0% for the Nasdaq, 6.3% for the S&P 500 and 6.0% for the Dow.

Stocks recovered from early losses on Thursday afternoon after comments from New York Fed President John Williams pointed strongly to an interest rate cut at the end of the month. The advance was led by the Consumer Staples, Financial, and Technology sectors, while Communication Services and Consumer Discretionary stocks traded lower. On the employment front, the Labor Department said that first-time unemployment benefit claims rose by 8,000 to a seasonally adjusted 216,000 for the week ended July 13, in line with the Reuters consensus forecast. The Dow rose 0.01%, the S&P 0.36%, and the Nasdaq 0.27%. Crude oil fell 2% to about $55.50 per barrel, while gold rose $23 to $1446 per ounce.

Stocks had a favorable backdrop Thursday following strong first-quarter results from Industrial companies and a report showing a rebound in retail spending. The Dow Jones Industrial Average was up 0.4% and the S&P 500 added 0.2%, while the Nasdaq Composite was flat. As the earnings season unfolded, stocks came into Thursday mixed, with the Dow finishing the holiday-shortened trading week up 0.6%, while both the Nasdaq and S&P 500 were flat. Year-to-date gains stand at 13.9% for the Dow, 20.5% for the Nasdaq, and 15.9% for the S&P 500.

Stocks rallied on Friday, aided by optimism about a resolution to the partial U.S. government shutdown, which ultimately occurred over the weekend. The Dow Jones Industrial Average climbed 0.8%, while the S&P 500 added 0.9% and the Nasdaq Composite rose 1.3%. Fourth-quarter earnings otherwise dominated the news flow last week, and for week equities finished near the flat line, with a 0.1% rise for both the Dow and Nasdaq, but a 0.2% loss for the S&P 500. Year- to-date gains now stand at 8.0% for the Nasdaq, 6.3% for the S&P 500 and 6.0% for the Dow.

The major indices are down at midday on Monday amid skepticism about the progress of a trade deal between the United States and China. Meanwhile, Saudi Aramco announced a timetable for its IPO, with pricing occurring over the next four weeks ahead of a mid-December debut on Saudi Arabia's Tadawul exchange. Industries doing well today include Independent Power & Renewable Electricity Providers, Media, and Household Durables. Industries showing weakness include Energy Equipment & Services, Communications Equipment, and Health Care Technology. The VIX is up 1.02 to 13.09 after the previous close of 12.07. The Dow, the S&P, and the Nasdaq were all down about 0.3%. Crude oil fell slightly to $57 per barrel, while gold lost $7 to trade near $1456 per ounce.

Stocks rallied on Friday morning as U.S.-China trade talks continue. In other news, the Federal Reserve announced that it is extending its purchase of T-bills through January 2020. The Bureau of Labor Statistics reported that U.S. import prices increased 0.2% in September following a 0.2% decline in August. U.S. export prices declined 0.2% in September on both agricultural and nonagricultural exports, following a 0.6% increase in August. Preliminary consumer sentiment for October rose to 96. The Dow rose 1.7%, the S&P 1.7%, and the Nasdaq 1.9%. Crude oil traded near $54 per barrel, while gold fell to $1484 per ounce.

Rescuing the Market from its Selloff

Rescuing the Market from its Selloff