Yesterday we talked about the opportunity to buy oil and oil and gas stocks.
Today, oil has been a major driver of global markets, rising 4.5% to above $ 70 a barrel.
And energy stocks were the best performers of the day in the S&P 500, up 3.5% as a sector.
This is in line with the large outperformance of small cap stocks over the past two days.
As we’ve discussed here in my notes for most of last year, we should expect small caps and value to outperform large caps and growth stocks coming out of the recession, and more, persistently outperform large caps over the next ten years.
Indeed, this has been the case. From the fourth quarter of last year to the first quarter of this year, the value of small caps outperformed large cap growth by the largest margin since World War II.
Coming out of the recession, small caps tend to follow the path of interest rates (rising rates, suggests a more optimistic outlook). With that, as interest rates (the 10-year yield) fell from 31 basis points last year to 1.78% this year, small-cap value stocks have soared.
And as interest rates have rolled over the past two months, so have small caps, creating this divergence in the chart below.
Fast forward to today: As fears of more restrictive policies surrounding the variant of the virus appear to be fading, rates are rebounding and small caps are rebounding. With this, the divergence in the chart above begins to aggressively close.
This dynamic promotes our Billionaire UKTN Wallet (my premium subscription service). Our value-driven small-cap portfolio has grown by up to 30% this year, before returning some of that outperformance over the past two months. You can buy the wallet on the downside by joining us today (details here).