A strong October month for equities bodes well for small-cap stocks and related exchange traded funds as we enter a seasonally strong period for smaller companies.
Over October, the iShares Core S&P Small-Cap ETF (NYSEArca: IJR), which tracks the S&P SmallCap 600, rose 6.0%; Vanguard Small Cap ETF (NYSEArca: VB), which follows the CRSP US Small Cap Index, gained 5.3%; the iShares Russell 2000 ETF (NYSEArca: IWM), which tracks the Russell 2000 Index, increased 5.8%; and Schwab U.S. Small-Cap ETF (NYSEArca: SCHA), which tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, returned 5.5%.
After large October gains, small-cap stocks typically generated outsized returns in the following November and December months, according to KimbleChartingSolutions.
Since 1991, small-cap stocks have turned positive 85.7% of the time over the November and December months, rising 6.8% on average, after the Russell 2000 registered a 4% gain in October. The Russell 2000 Index rose 5.3% last month.
Source: Kimble Charting Solutions