Market Capitalization: Large / Small

The outperformance of the S&P 500 relative to the S&P 500 EW index is likely to continue over the next year, supported by stronger earnings growth. However, extreme levels of market concentration will ultimately halt the outperformance of the mega-caps.

We upgrade European small caps to maximum overweight and double down on our existing recommendation to go long European small caps relative to US ones.

Recently, small-cap stocks have shown signs of outperformance. In this report, we examine whether the rebound is sustainable by analyzing long-term structural trends, the macroeconomic backdrop, the impact of tariffs, and other key factors.

This week, our three screeners cover: Favoring European equities over US equities, cybersecurity stocks, and large caps with large moves in their BCA Score. 

The US High-Quality (USHQ) portfolio slightly outperformed in January, returning 3.4%, whilst its SPY benchmark returned 2.9%. That said, we think the USHQ portfolio will have a solid run through the first half of 2025, benefitting from rising market risk on the back of President Trump’s tariff agenda. USHQ’s underlying Quality and Safety Score factor tilts will be increasingly favored as market uncertainty grows.