Shares of smaller U.S. companies are performing well enough this quarter to signal a year-end rally in stocks, according to Ari Wald, an analyst at PrinceRidge Group LLC.
As the CHART OF THE DAY depicts, the Standard & Poor’s MidCap 400 Index has risen relative to the S&P 500 since the quarter started. The S&P SmallCap 600 Index has followed suit more recently.
The increases in the index ratios are noteworthy because they happened “during a period of market consolidation, when investors tend to gravitate toward safer, bigger-cap names,” Wald, based in New York, wrote in a note yesterday.
Companies in the S&P 500 had a median market capitalization of $12.4 billion as of yesterday, according to data compiled by Bloomberg. The medians for the MidCap 400 and SmallCap 600 were $2.7 billion and $730 million, respectively.
The S&P 500 posted a 3.2 percent decline for the quarter through yesterday. Most of the drop followed President Barack Obama’s re-election as investors refocused on the U.S. budget debate and European debt crisis.
Smaller companies are giving “a positive indication of recovery” by their showing, which bodes well for end-of-year gains, Wald wrote. The analyst joined PrinceRidge, a unit of Philadelphia-based Institutional Financial Markets Inc., last month after eight years at Brown Brothers Harriman & Co.