Why investors have fallen in love with small American firms

Believe it or not, corporate America still makes room for the little guy. Around half of working Americans are employed by a firm with less than 500 workers. Nine in ten banks are community institutions that hold less than $10bn in assets. This rather parochial picture, however, is not reflected in the country’s stockmarket, where the falling number of public companies and extreme concentration of value are a concern. Among America’s 3,000 largest public firms, the biggest 1,000 account for 95% of total value. The next 2,000, which form the Russell 2000 index, are collectively worth less than Apple, the world’s most valuable company.

Now the unloved miniatures of America’s stockmarket are having their day in the sun. For most of the year, their shareholders watched the bull market from the stands: the Russell 2000 barely budged, while the S&P 500 index of large American firms rose by almost a fifth. Until the past week, that is, when the Russell 2000 was hurled forward as if by both of the market’s charging horns. The index has jumped by 9%, reaching its highest level since the beginning of 2022. Compared with the S&P 500, which is down slightly over the past week, its outperformance is the largest in history. Analysts are debating whether the move is a freak incident, the beginning of a “small-cap summer” or even a “great rotation” from big stocks to small ones.