Small-cap stocks (18.6%) outperformed large caps (11.5%) for the sixth consecutive year in 2004, and the small-cap Russell 2000 Index reached an all-time high at year’s end. Though both styles reflected a positive year for U.S. equities, the large-cap Russell 1000 Index remains about 15% below its all-time high.
“Investors expecting large-cap stocks to take flight relative to small stocks in 2004 mostly sat on the runway,” says Dennis Jensen, senior portfolio analyst. “Large caps showed some strength mid-year, but small caps flexed their muscle again in the fourth quarter.”
Jensen added that the Russell 2000 has reflected a 9.4% annualized return since the start of 1999, while the Russell 1000 has posted a 1.8% annualized return.
Overall, each of Russell’s 21 stock indexes turned in a positive performance for December. The positive month topped off a very strong quarter and good year. The indexes, which track various market segments, showed some disparity in total performance for the quarter, ranging from 15.4% (Russell 2000 Growth Index) to 7.9% (Russell Top 200 Growth Index). For the year, though, the gap widened to 23.8% for the Russell Midcap Value Index versus 4% for the Russell Top 200 Growth Index.
However, growth and value stocks performed nearly equal during the fourth quarter. The Russell 3000 Value Index (10.7%), for example, barely outpaced the Russell 3000 Growth Index (9.8%).
The 12 sectors in Russell indexes provided investors with some notable contrasts in performance. The fourth quarter, for example, saw a remarkable reversal in the fortunes of several sectors from the rest of the year. The technology sector in the Russell 3000 Index turned in the best performance of any sector for the fourth quarter with a 14.6% surge, but it still ends the year with the worst performance for 2004 with a paltry 1% gain. Meanwhile, Integrated Oils (28.1%) and Other Energy (41.3%) blew past the other sectors for the year, but they were among the worst performing sectors for the fourth quarter.
“Sectors provided investors with some gyrating performance gaps in 2004,” says Jensen. “Oil prices rocketed up for the first three quarters, but tanked in the fourth quarter, while technology stocks recovered in the fourth quarter after struggling most of the year.”
Jensen added that investors in the fourth quarter finally seemed ready to take a chance again with more aggressive stocks.
“Investors found cover in defensive stocks for most of 2004 but now, with the presidential election behind us and oil prices under control, they seem more comfortable with cyclical stocks,” says Jensen. “They’re also focusing more on fundamentals now as they look beyond the macro-economic concerns that dominated much of 2004.”