Small caps (still) lagging behind

Last Updated: 2. Januar 2024By

If one only looks at the major indices, one might get the impression that 2023 was a fantastic year for the stock market. However, this is not the case. The upswing in both Germany and the US is currently only being driven by a relatively small number of stocks.

On Wall Street, practically all of the S&P 500’s gains last year can be attributed to the heavyweights Apple, Microsoft, Alphabet, Amazon, Meta, Nvidia, and Tesla, known as the „Magnificent Seven.“

Similarly, in Germany, investors who were initially uncertain primarily put their money on the large DAX corporations. These companies benefited from a significant portion of their revenues being generated abroad. Stocks in the second tier, however, were hit harder by the weakness of the German economy, in which the Ampel coalition government played a decisive role.

Small caps lag significantly behind The surprising result: Just before the end of the year, the DAX even reached a new all-time high and ended the year with a solid gain of 20%. The MDAX, on the other hand, only saw an increase of 8%. At times, there was almost a „buyer strike“ for small caps.

The gap is even wider in the US. Thanks to the „Magnificent Seven,“ the S&P 500 recorded a gain of 24% in 2024. However, the small-cap index Russell 2000 ended the year in the red.

The underperformance of small caps, which began with the start of the Ukraine conflict, means that many large companies are already relatively highly valued, while numerous small businesses are still very cheap.

This presents significant profit opportunities for you as an investor. Tomorrow, I will explain why it is highly likely that there will be a comeback of small caps in 2024.