--- title: "David v. Goliath: Why Small-Caps Will Slay Market Giants in 2023" description: Find out why we are bullish on small-caps for the short, medium and long term time horizons. image: https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/Image-Size-Template-2.png --- [![investing-responsibly-3.png](https://blog.riverwaterpartners.com/hs-fs/hubfs/RiverwaterPartners_September2024/images/investing-responsibly-3.png.webp?width=384&height=40&name=investing-responsibly-3.png.webp)](https://riverwaterpartners.com/) #### 4140 Parker Ave, St. Louis, MO 63116 #### [(207) 555-0119](tel:2075550119) [Client Login](https://riverwaterpartners.com/client-login/) --- [![investing-responsibly-3.png-1](https://blog.riverwaterpartners.com/hs-fs/hubfs/RiverwaterPartners_September2024/images/investing-responsibly-3.png-1.webp?width=384&height=40&name=investing-responsibly-3.png-1.webp "investing-responsibly-3.png-1")](https://riverwaterpartners.com/) - [Home](https://riverwaterpartners.com/) - [About Riverwater](https://riverwaterpartners.com/about-riverwater-milwaukee-responsible-investing/) - [Our Story](https://riverwaterpartners.com/about-riverwater-milwaukee-responsible-investing/) - [Our Team](https://riverwaterpartners.com/about-riverwater-milwaukee-responsible-investing/our-team/) - [We are Proud to be a B Corp™](https://riverwaterpartners.com/b-corp-responsible-investing-milwaukee/) - [Careers and Internship](https://riverwaterpartners.com/careers-internship/) - [Wealth Management](https://riverwaterpartners.com/wealth-management-services/) - [Individuals and Families](https://riverwaterpartners.com/wealth-management-services/individuals-families/) - [Nonprofits and Institutions](https://riverwaterpartners.com/wealth-management-services/nonprofits-corporations-institutions/) - [Wealth Management Insights](https://riverwaterpartners.com/wealth-management-insights/) - [Small Cap Strategies](https://riverwaterpartners.com/esg-small-cap-value-strategies/) - [Strategies](https://riverwaterpartners.com/esg-small-cap-value-strategies/) - [Investment Process](https://riverwaterpartners.com/esg-small-cap-value-strategies/investment-process/) - [Our Competitive Advantage](https://riverwaterpartners.com/riverwaters-competitive-advantage/) - [Strategy Webinars](https://riverwaterpartners.com/esg-small-cap-value-strategies/webinars/) - [Small Cap Insights](https://riverwaterpartners.com/small-cap-insights/) - [Sustainable Investing](https://riverwaterpartners.com/responsible-investing-esg-milwaukee/) - [What is ESG](https://riverwaterpartners.com/responsible-investing/#what) - [How We ESG](https://riverwaterpartners.com/responsible-investing/#how_we_ESG) - [Sustainability Report](https://riverwaterpartners.com/responsible-investing/#Sustainability_Report) - [Contact](https://riverwaterpartners.com/contact/) #### 4140 Parker Ave, St. Louis, MO 63116 #### [(207) 555-0119](tel:2075550119) [Client Login](https://riverwaterpartners.com/client-login/?__hstc=233546881.0134c20891fd47ee2f28c8f9b6bee255.1718079763696.1727162841117.1727167771382.206&__hssc=233546881.1.1727167771382&__hsfp=4047840898) Search: SEARCH [Client Login](https://riverwaterpartners.com/client-login/) Search: SEARCH [Client Login](https://riverwaterpartners.com/client-login/?__hstc=233546881.0134c20891fd47ee2f28c8f9b6bee255.1718079763696.1727162841117.1727167771382.206&__hssc=233546881.1.1727167771382&__hsfp=4047840898) # David v. Goliath: Why Small-Caps Will Slay Market Giants in 2023 # David v. Goliath: Why Small Caps Will Slay Market Giants in 2023 By [Adam Peck](https://riverwaterpartners.com/dt_team/founder-chief-investment-officer/). After more than a decade of being out of favor, we (and our friends at [Furey Research Partners](http://www.fureyresearch.com/)) believe that small-caps are poised to become stock market leaders over the next decade. Timing is everything they say. Three reasons why now is the time for small-caps:  (1) they are cheap, (2) the large-cap cycle is ending, and (3) they typically do well in the exact environment we are in right now. ### **Small-caps are cheap right now ** The Russell 2000 is trading one standard deviation below its average valuation over the last 35 years. It is also trading at historically low levels vs large-caps. This past October, small-cap stocks traded at 72% of the value of large-cap stocks on LTM P/E, which is very close to the previous small-cap lows at similar levels in 1973 and 2000. ### The large-cap cycle is ending The large-cap cycle looks to be nearing an end given that margins seem to have hit peak levels. As seen in the chart below, peak concentration in the S&P500’s top 5 largest constituents has historically coincided with long small-cap outperformance cycles that last on average 10-12 years. After the peak of large-cap concentration (red dot), small-caps’ relative performance vs. large trends up (orange line). ### Prime environment for small-caps Lastly, the environment we are in today – both politically and economically – sets up well for small caps. First, politically, small-caps happen to have a great track record in years coming out of midterm elections. Second, small-cap returns coming out of bad years are reliably positive and relatively better than those for large-caps. Lastly, small caps do best in environments where inflation and central bank tightening have peaked, like it is now. Based on these factors we are bullish on small-caps potential for both positive absolute and relative returns over the short, medium and long term. [Small Cap Strategies](https://blog.riverwaterpartners.com/small-cap-insights/tag/small-cap-strategies) [By Adam Peck, CFA](https://blog.riverwaterpartners.com/small-cap-insights/author/adam-peck) [January 9, 2023](https://blog.riverwaterpartners.com/small-cap-insights/archive/2023/01/09/) ## Share this post - - - - ![Adam Peck, CFA](https://blog.riverwaterpartners.com/hubfs/Adam_Peck_headshot_3_22_Edit-1%20copy.jpeg) #### Author: Adam Peck, CFA [Previous Q2 2022 | Grin and Bear It](https://blog.riverwaterpartners.com/small-cap-insights/2022/07/12/q2-2022-market-and-strategies-update) [NextOur Focus on Water Stewardship](https://blog.riverwaterpartners.com/small-cap-insights/2023/01/12/our-focus-on-water-stewardship) ### Related posts [![Q2 2022 | Grin and Bear It](https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/Quarterly-Letter-Website-Images-1.png)](https://blog.riverwaterpartners.com/small-cap-insights/2022/07/12/q2-2022-market-and-strategies-update) [Q2 2022 | Grin and Bear It](https://blog.riverwaterpartners.com/small-cap-insights/2022/07/12/q2-2022-market-and-strategies-update) July 12, 2022 [The Superiority of the Russell 2500 Over the Russell 2000](https://blog.riverwaterpartners.com/small-cap-insights/2021/06/07/the-superiority-of-the-russell-2500-over-the-russell-2000) June 7, 2022 [![Russell 2000 Sustainability Reporting: Where Do Small-Caps Stand?](https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/Green-Masters-3.png)](https://blog.riverwaterpartners.com/small-cap-insights/2024/09/27/russell-2000-sustainability-reporting-where-do-small-caps-stand) [Russell 2000 Sustainability Reporting: Where Do Small-Caps Stand?](https://blog.riverwaterpartners.com/small-cap-insights/2024/09/27/russell-2000-sustainability-reporting-where-do-small-caps-stand) September 27, 2024 [![Q3 2024 Small-Cap Market Update: Looking for Levis®](https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/Q3-2024-Small-Cap-Macro-Update.png)](https://blog.riverwaterpartners.com/small-cap-insights/2024/10/08/q3-2024-small-cap-market-update-looking-for-levis) [Q3 2024 Small-Cap Market Update: Looking for Levis®](https://blog.riverwaterpartners.com/small-cap-insights/2024/10/08/q3-2024-small-cap-market-update-looking-for-levis) October 22, 2024 [![Q2 2023 | Artificial Exuberance](https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/David-v_-Goliath-7.png)](https://blog.riverwaterpartners.com/small-cap-insights/2023/07/14/q2-2023-artificial-exuberance) [Q2 2023 | Artificial Exuberance](https://blog.riverwaterpartners.com/small-cap-insights/2023/07/14/q2-2023-artificial-exuberance) July 14, 2023 [![Q4 2022 | Coal for Christmas](https://blog.riverwaterpartners.com/hubfs/Imported_Blog_Media/David-v_-Goliath.png)](https://blog.riverwaterpartners.com/small-cap-insights/2023/01/27/q4-2022-market-and-strategies-update) [Q4 2022 | Coal for Christmas](https://blog.riverwaterpartners.com/small-cap-insights/2023/01/27/q4-2022-market-and-strategies-update) January 27, 2023 ![investing-responsibly-2-300x58.png](https://blog.riverwaterpartners.com/hs-fs/hubfs/RiverwaterPartners_September2024/images/investing-responsibly-2-300x58.png.webp?width=300&name=investing-responsibly-2-300x58.png.webp "investing-responsibly-2-300x58.png") ![BCB-300x165.png](https://blog.riverwaterpartners.com/hs-fs/hubfs/RiverwaterPartners_September2024/images/BCB-300x165.png.webp?width=300&name=BCB-300x165.png.webp "BCB-300x165.png") We are proud to be Milwaukee-based, a Certified B-Corp™ and a Certified Woman-Owned Business. 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