Newspaper article THE JOURNAL RECORD

Don't Look for an Explosion in Small-Cap Stock Prices

Newspaper article THE JOURNAL RECORD

Don't Look for an Explosion in Small-Cap Stock Prices

Article excerpt

NEW YORK -- In this age of technology, when brainy new companies can explode upon the marketplace, you might think that small- company stocks would be among the market leaders.

They have not been. As a category, they have been a wet fuse, sputtering now and then but never catching fire. Meanwhile, their opposites, the biggest stocks, are providing the fireworks.

This laggard performance is utterly contrary to the forecasts of those who follow small-capitalization stocks and who three years ago were predicting a span of superior results that could last for several years. That it didn't happen has yet to be fully explained, though a plausible answer might lie in the fact that big buyers of stocks, such as mutual funds and pension funds, tend to avoid small stocks for a number of reasons. Of these reasons, the primary one is the difficulty of buying into and selling out of small stocks without affecting the price. Big- cap stocks with lots of shares outstanding can accommodate such buying, small stocks cannot. Whatever the reason, the stark facts are written clearly: As large caps have risen to new highs, middle-size and small-size issues have trailed far behind. Some of the statistical evidence of this is even startling. The editors of Standard & Poor's Outlook notes that through May 14, only 43 percent of stocks in the large-cap 500-stock index were more than 10 percent below their 1996-1997 highs. In contrast, 51 percent of stocks in the mid-size issues and 71 percent of small-cap issues had fallen by at least that much. If a decline of more than 20 percent defines a bear market, the Outlook editors say, then almost half of the S&P SmallCap stocks are now in a bear market -- while the marketplace as a whole has been bulling ahead. Gerald Perritt, a small-stock researcher, analyst and adviser, points out that in 12 months through April, a performance gap of slightly more than 25 percent has opened between popular small-cap and big-cap indexes. …

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