Large-cap stocks are back in favor, riding on economy
NEW YORK » All eyes have been focused on the Dow Jones industrial average as it moves in fits and starts toward an all-time record for the first time in six years.
One reason the Dow has been testing six-year highs is that investors, who have heavily favored the stock in small- and mid-sized companies since the 2000-2002 crash, have newfound appreciation for large cap equities, experts say.
There were signs last year that a shift was underway, but it didn't materialize, leaving analysts a bit skittish about calling the turn now.
"I can't jump up and down yet," said Jack A. Ablin, chief investment officer at Harris Private Bank in Chicago. "But I'm encouraged by the signs."
Ablin's been watching the Standard & Poor's 100 index, a broader measure of large cap stocks than the 30-equity Dow, and he said that "what we're finding is, since the end of March, the largest companies are starting to outpace the small."
The S&P 100's large-cap companies underperformed the small- and mid-cap companies in the Russell 2000 by almost 55 percent over the last five years. But since the end of March, the S&P 100 gained nearly 3 percent before dipping in recent days; the small- and mid-cap Russell 2000, meanwhile, was up less than 2 percent.
"At long last, it appears, the worm has turned for the mega-caps," Ablin said.
The Dow climbed to within about 75 points of its record close of 11,722.98 on Jan. 14, 2000, before getting skittish on Wednesday over the Federal Reserve's ambiguous statement on the future course of interest rates.
Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. in Philadelphia, said that the market in general has been encouraged by continuing economic growth as well as solid corporate profit reports.
"The investment community is convinced the economy can still grow despite moves by the Fed to raise interest rates and higher energy costs," he said. "Consumers don't like $3 gas and paying more for mortgages, but they're taking it in stride, and that has renewed (investor) confidence."