Among the major groups of stocks around the world that we follow, US small-cap stocks have been the best performer over the last decade as the USD experienced a strong bull market. US small caps have outperformed our mid/large group of developed companies by almost 40% over the last 10 years.
The relative performance has been highly correlated to the movement of the USD. US small caps made an intermediate high in April 2015 after the USD soared from about 80 to 100. They then tested this high in December 2016 as the USD once again reached new highs. Recently, as the USD was on the rise once again, small caps again tested their decade-long relative highs.
However, over the last few weeks, as the USD slowly rolled over, small caps are down about 3.5%.
When I tune the time-frame in to just this year’s, the relationship with the USD is even more clear. With an 83% correlation, roughly two-thirds of the performance of small caps this year can be attributed to the rise in the USD.