Chart of the Week - big value in small caps

Callum Thomas

Topdown Charts

Small Cap Equity PE10 Valuations: US small cap stocks have experienced a decent reset in valuations, with the S&P 600 PE10 ratio dropping almost -40% from the peak.

The S&P 600 PE10 ratio (price vs trailing 10yr average earnings) is sitting about 10% below the average of the past 25 years, and is trading at a discount of -10% vs the S&P 100 (which compares to an long-term average premium of +5%).

So I would say yes there is value in small caps, but probably small value

It should be noted that as things stand, the S&P 600 is still trading materially higher than the 2003, 2009, 2020 lows — and with global equities still in an entrenched bear market and the Fed still pushing hard on tightening, there is every possibility that “cheap“ gets cheaper.

But aside from the PE10 ratio, a number of other measures of relative value we look at are also tracking well below average for small caps vs large caps, so there are pockets of outright value and relative value emerging as the bear market progresses.

Key point: US Small Caps are starting to look cheap.

NOTE: this post first appeared on our NEW Substack: (VIEW LINK)

Best regards,

Callum Thomas

Head of Research and Founder of Topdown Charts

Callum Thomas
Head of Research
Topdown Charts

Callum is Head of Research at Topdown Charts. Topdown Charts is a chart-driven macro research house covering global Asset Allocation and Economics.

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