The Real Deal on Wall Street: Respect Those Small Caps

Earnings season is behind us, leaving with it memories of slowing corporate profit growth and some tough to stomach first takes on 2012 guidance. Capex plans appear to be fairly solid as companies lay the foundation both online and in the ground to make up for the underinvestment during the Great Recession. Heck, we are even laying eyes on billion dollar share repurchase programs in a throwback to 2007; in a few instances 2012 will represent a company's second consecutive year of billion dollar plus repo plans. Out goes the focus on this now old information and its place, a central focus on minute data not so apparent to the untrained eye. Sure, we all will be watching like a hawk every macro release and Fed musings of various Fed governors, but with a market bid up as it has been stock handicappers are on the lookout for that competitive edge. You know, a broader market index that is not moving the correct way on a relative basis, or a basket of stocks in a specific sector that should be leading but are lagging. For my two cents, I say let's get beyond all the talk about the price action in transports not supporting the rally. In turn, let's pay closer attention to the Russell 2000. The underperformance of the Russell 2000 accelerated in the second half of February, rising on two of the last nine days while the S&P 500 gained in seven. I tend to pull up a chart of the iShares S&P SmallCap 600 Index ETF when seeking signs of potential tops in broader equity indices or a market that deserves a bit more love than it's receiving. As for this particular ETF, it has basically flatlined since the first part of February, obviously not participating in the euphoria that has Dow 13,000 plastered all over the internet. Remember, that for a three-month period from April 2011 to July 2011 the ETF showed the same pattern, only to nosedive as the debt ceiling discussions ratcheted up the fear. I am not saying that past performance is indicative of the future (sound like a commercial there), but there is enough sense of bullishness in the markets as economic data has come in ok and the Fed feeds the masses. It's worthwhile to wonder (and be positioned accordingly) if there are domestic speed bumps not being appreciated.