Retracing the 2018 Rally in Small Cap Stocks

Founded in 2006, Tangiers Investment Group, LLC, provides funding to small and midcap public companies. In its work, Tangiers Investment Group, LLC, works closely with small publically traded companies, providing much-needed financing for growth. 

Small cap stocks have been on a rally since the start of 2018. As at July 19, the Russell 2000 Index was up 10.58 percent and the S&P Small Cap 600 was up 12.49 percent. In comparison, the large cap S&P 500 was only up 4.78 percent from the start of the year. This means small cap stocks outperformed large cap stocks by a multiple of over 2. 

Why are small cap stocks performing so well this year? There could be several reasons for this. The first is tax reform. Since small cap stocks source a lot more of their revenue from the local market than large cap stocks, they are more sensitive to local tax changes. Therefore, lower taxes mean higher earnings.

Another reason is domestic growth. As the domestic economy grows, small cap stocks benefit greatly since this is a big part of their market. Large cap stocks are less sensitive since they draw plenty of their revenues overseas.