While we usually focus on the large-cap market indexes, they often disguise what is happening with smaller-cap stocks. Recently I decided to delve into this question with a chart showing the relative strength of smaller-cap indexes. The first relative strength panel examines all S&P 500 stocks on an equal-weighted basis. (The S&P 500 is a cap-weighted index, and its fifty largest stocks comprise about 70% of the index weighting.) To get the relative strength line, we divided the Guggenheim S&P 500 Equal Weight ETF (RSP) by the benchmark index, SPY. Granted, RSP isn't a smaller-cap index, but it gives the smaller-cap stocks in the SPX more weight. The other two relative strength panes are for the S&P 400 Mid-Cap ETF (MDY) and the S&P 600 Small-Cap ETF (IJR). As you can see, relative strength has been falling on all three indexes since the end of 2016.
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