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Small-cap stocks have lagged behind their larger counterparts for more than 20 years, leaving beleaguered small-cap investors to wonder if smaller stocks will finally start to outperform the large-caps. They offer what I call a “snapback” hypothesis for why small caps should now outperform: Large caps’ outperformance is stretched so thin it’s like a rubber band — ready to snap back.
Supporting this hypothesis is well-respected, as peer-reviewed academic research in the 1980s and 1990s found that, except for relatively short periods, small-cap stocks could be counted on to beat the large-cap S&P 500
SPX over the longer term.
