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This trend continued in the initial months of the pandemic following the stock market bottom in March 2020 as money flowed into tech stocks whose revenues were accelerating and large-cap stocks which were able to take advantage of lower rates. Entering 2021, there was optimism about small caps outperforming large caps especially with rising interest rates and an acceleration in economic growth. From November 2020 to March 2021, the Russell 2000 was up 55%, while the S&P 500 was up 33%.
Since then, large caps have grabbed the baton once again with the S&P 500 up 15%, while the Russell 2000 is down 6%. Although small caps face some notable headwinds in the coming months, this weakness is creating an opportunity in a handful of stocks with improving fundamentals. Investors who are looking to increase exposure to this asset class should consider buying Build a Bear Workshop (BBW), Eurodry (EDRY), and Immersion (NASDAQ:IMMR).
