S&P Says Small Caps Will Outperform Again This Year.

Small Cap Encore:

In a special edition of Mar. 17, 2010 Outlook, celebrating the one year anniversary of the bull market, S&P expects that the same sectors will outperform again this year. Small caps heartily outperformed in the 12 months from March 9, 2009 through March 8, 2010. The S&P 500 gained 68%, vs. 95% for the Small Cap 600. After doing a thorough analysis of previous bull markets, S&P analysts have reached these conclusions:

“Historically, small-cap stocks continue to beat large caps, cyclical sectors outperform defensive ones, and a rising tide once again lifts all boats. But while the direction remains the same, the magnitude is reduced.”

“Since 1949, the total return (price plus dividends reinvested) for small-cap stocks averaged 22% in year two of a bull market versus 15% for large-cap issues. Yet in year two, the frequency of small caps beating large caps fell to 67% of the time versus 90% during year one.”

S&P thinks that there is a possibility of a moderate correction sometime this year. They maintain a 12 month target for the S&P 500 of 1215. I think they mean a year end target. Since the S&P 500 is currently trading at 1,144, that would be a modest gain of 6.21% from here.