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Small-cap win streak ends; what’s next?

The small-company Russell 2000 stock index did something Monday it hadn’t done since Nov. 3: finish down for the day.

The dip into the red marked the end of a 15-session winning streak — tying a feat last achieved in 1996 and marking only the fifth time in its history it has gone that many trading sessions without a loss.

During the hot streak, the small-fry stock index rallied 16.5%, its best-ever performance in winning streaks that stretched 15 days or longer, according to Bespoke Investment Group.

So now that the big rally is over for small-cap stocks, are the good times over? History says the Russell 2000 might still have some gas left in the tank despite its heady run, which gained strength after Election Day when Donald Trump’s surprise win and his “America First” policy proposals created a tailwind for the domestic-focused small-company stock index.

A week after the four prior winning streaks of 15 days or more since 1979 (the record was 19 trading days in 1985) the Russell 2000 was up 1%, on average. A month later it was up 2.4% and higher all four times. After a small consolidation three months out, which saw gains of just 0.9%, the Russell 2000 was up solidly six months later, with average gains of 6.3%.

Bespoke Investment Group’s takeaway? “It certainly has been a strong month for small caps, but if prior experience is any guide, further gains (although less hefty) may be in the cards.”