The Ratio of Ratios bounced off last month’s multi-year low (4% Small Cap discount) but still sits firmly below its Small Cap median, which is a premium of 4%.
The August market action deflated P/E ratios across all market cap tiers, but our ratio of ratios was little changed.
Nudged higher by Small Cap outperformance in May, our premium is little changed month-over-month and remains in its new 5-10% habitat.
Small Cap Premium Plunges To 5%
Small Cap Premium Sinks To 15%
Small Cap Premium Spikes Back To 20%
In September, the Russell 2000 index lost 6% and is down 4.4% YTD. Large Caps widened their YTD performance lead (S&P 500 +8.3%). Small Cap Premium slides to 15%.
Small Caps are selling at a 19% valuation premium relative to Large Caps.
Small Cap Premium Slumps To 17%
For managers who are mandated to stay fully invested, Mid Caps make pretty good sense as a replacement for extremely overvalued Nifty Fifty stocks.