Wall Street resumes trading today after a long holiday respite, and at the opening bell it’s clear that differentiating stocks by market cap by style remains every bit as potent thus far in 2006 as it was last year.
Slicing the stock market by capitalization reveals that smaller is still better. The Russell Microcap Index in January has easily outdistanced its larger-cap brethren, posting a 5.36% total return through Friday. Large-caps, represented by the Russell 1000, looks sluggish by comparison, rising by a relatively sluggish 3.3%.

The year has only just started, of course, so reading too much into year-to-returns carries risk. That said, it’s instructive to note that Mr. Market is rewarding higher-risk stocks with higher returns. That’s not surprising as a long-run proposition, but for the weeks and months ahead some may find reason to wonder if smaller stocks are deserving of accelerated performance.
Small-caps have been on a roll for several years now relative to large caps. Will rising anxiety over predictions of an economic slowdown, as reported by today’s Wall Street Journal (subscription required), derail the small-cap train? In theory, small-cap stocks are more vulnerable to an economic stumble relative to larger firms.
Slicing the market by style and capitalization is messier, although small-caps remain the favorites. As for large caps, value still has the edge so far in 2006.
Although some strategists have been predicting that large-cap value would finally turn this year, and reverse the leadership that large-cap value has held for several years, there’s scant evidence for the turnaround so far.