Mid-cap momentum Mid-cap momentum http://www.federatedinvestors.com/static/images/fed-logo-amp.png March 20 2019

Mid-cap momentum

The middle of the stock market is making a comeback.
Published March 15 2019
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Coming off a rough year, mid-cap stocks have roared back in 2019, outperforming their large- and small-cap counterparts. Here are three key factors driving this performance.

  • Best of both worlds Mid-cap stocks tend to offer stronger earnings growth than large caps, but with less volatility than small caps. The S&P Mid Cap 400 has had positive sales and earnings growth in almost every one of the last 10 years. Sales in 2018 grew 13%—nearly double the S&P 500’s 7.7%. Further, the S&P 400 is coming off a year of more than 25% earnings-per-share (EPS) growth, its highest rate since 2010. This potential for higher earnings growth is part of the reason mid-caps have outperformed the S&P 500 by roughly four percentage points per year over the last two decades. Small caps have had similar success, of course, but mid-sized companies often have better drawdown characteristics relative to small caps. For example, during the fourth-quarter sell-off, the S&P 400 fell 23.5% from its high for the year to its December low, whereas the S&P Small Cap 600 dropped 27.7%.
  • Attractive valuations Even with high growth rates, many mid-cap companies have been trading at a valuation discount to their large and small brethren. As of Friday, the S&P 400 had a forward P/E multiple of 15.6 relative to estimated 2019 earnings, while the comparable S&P 500 and 600 multiples were 16.3 and 16.9, respectively.
  • Shedding excess weight Mid-cap funds can offer greater diversification than their large-cap peers because most major indexes are weighted according to market capitalization. Rather than being stuck with a few mega corporations such as Apple, Amazon and Microsoft, mid-cap holdings usually are spread much more evenly and wider across various constituents.
Tags Equity . Markets/Economy . United States .
DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

Price-earnings multiples (P/E) reflect the ratio of stock prices to per-share common earnings. The lower the number, the lower the price of stocks relative to earnings.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

S&P Midcap 400 Index: An unmanaged capitalization-weighted index of common stocks representing all major industries in the mid-range of the U.S. stock market. Indexes are unmanaged and investments cannot be made in an index.

S&P SmallCap 600 Index: An unmanaged capitalization-weighted index representing all major industries in the small-cap of the U.S. stock market. Indexes are unmanaged and investments cannot be made in an index.

Past performance is no guarantee of future results.

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