Yesterday, we talked about the buying opportunity in oil and oil and gas stocks.
Today, oil was one of the biggest movers in global markets—up 4.5%, back above $70 a barrel.
And energy stocks were the best performers on the day in the S&P 500, up 3.5% as a sector.
This aligns with the big outperformance of small-cap value over the past two days.
As we’ve discussed here in my notes for the better part of last year, we should expect small-caps and value to outperform large-caps and growth stocks coming out of recession, and moreover, persistently outperform large-caps over the next ten years.
Indeed, that has been the case. From the fourth quarter of last year through the first quarter of this year, small-cap value outperformed large-cap growth by the widest margin since World War II.
Coming out of recession, small-caps tend to follow the path of interest rates (climbing rates, suggests more optimistic outlook). With that, as interest rates (the 10-year yield) rose from as low as 31 basis points last year to as high as 1.78% this year, small-cap value stocks soared.
And as interest rates have rolled over the past two months, so have small-caps— creating this divergence in the chart below.
small caps
Fast forward to today: As the fear of more restrictive policies surrounding the virus variant seems to be waning, rates are bouncing and small-caps are bouncing. With that, the divergence in the chart above is beginning to close aggressively.
This dynamic favors our Forbes Billionaire’s Portfolio (my premium subscription service). Our small-cap value-oriented portfolio has been up as much as 30% this year, before giving back some of that outperformance over the past two months. You can buy the portfolio on a dip by joining us today (details here).
