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Reddit users discuss adjusting market cap definitions to account for inflation. Small-cap value stocks lag behind S&amp;P 500, prompting calls for change.

As Small Caps Lag 20% Behind S&amp;P 500, Reddit User Says Market Cap Definitions &#39;Should Really Be Readjusted For Inflation&#39;

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In a recent discussion on Reddit, users are debating the necessity of adjusting market cap definitions to <a href="https://www.benzinga.com/topic/s-p-500">account for inflation</a>. 
<figure class="wp-block-embed is-type-rich is-provider-reddit wp-block-embed-reddit"> 
<div class="wp-block-embed__wrapper">
<blockquote class="reddit-embed-bq" style="height:316px" ><a href="https://www.reddit.com/r/stocks/comments/1dgr59c/small_cap_value_has_never_been_more_brutal/">Small Cap Value has never been more brutal</a> by<a href="https://www.reddit.com/user/AbuSaho/">u/AbuSaho</a> in<a href="https://www.reddit.com/r/stocks/">stocks</a></blockquote>
<script async src="https://embed.reddit.com/widgets.js" charset="UTF-8"></script></div>
</figure>
This topic has garnered attention as small-cap value stocks lag significantly behind the S&amp;P 500, underperforming by over 20%, as <a href="https://www.reddit.com/r/stocks/comments/1dgr59c/small_cap_value_has_never_been_more_brutal/">highlighted</a> by Redditor AbuSaho.
Also Read: <a href="https://www.benzinga.com/markets/equities/24/06/39351522/s-p-500-index-year-end-target-raised-to-5-600-by-goldman-sachs-on-strong-tech-earnings-and-valua">S&amp;P 500 Index Year-End Target Raised To 5,600 By Goldman Sachs On Strong Tech Earnings And Valuation Expansion</a>
<figure class="wp-block-image size-full"><a href="https://pro.benzinga.com/dashboard"><img loading="lazy" decoding="async" width="626" height="452" src="https://editorial-assets.benzinga.com/wp-content/uploads/2024/06/17064833/Screenshot-2024-06-17-at-4.18.10-PM.png" alt="" class="wp-image-391006" srcset="https://editorial-assets.benzinga.com/wp-content/uploads/2024/06/17064833/Screenshot-2024-06-17-at-4.18.10-PM.png 626w,https://editorial-assets.benzinga.com/wp-content/uploads/2024/06/17064833/Screenshot-2024-06-17-at-4.18.10-PM-300x217.png 300w" sizes="(max-width: 626px) 100vw, 626px" /></a></figure>
<a href="https://pro.benzinga.com/dashboard" target="_blank" rel="noreferrer noopener">Chart: Benzinga Pro</a>
The SPDR S&amp;P 600 Small Cap Value ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SLYV#NYSE">SLYV</a>), representing small cap value stocks in the U.S., is down 8.31% YTD, while the broad U.S. equity market-tracking SPDR S&amp;P 500 ETF (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/SPY#NYSE">SPY</a>) has gained 14.19% over the same period.
<h2 class="wp-block-heading">The Call For Change: Adjusting Market Cap Definitions</h2>
One Redditor argues that market cap definitions are outdated and should be revised to reflect the current economic landscape. 
The key points include:
<ol>
<li>Outdated Thresholds:
<ul>
<li>Market cap categories such as small, mid, and large caps were established in a different economic context and have not kept pace with inflation. The traditional classification system may no longer accurately represent the size and economic impact of companies today.</li>
</ul>
</li>
<li>Need for Adjustment:
<ul>
<li>The Redditor suggests revising market cap thresholds to better align with today&#8217;s inflation-adjusted values. They believe that this change could provide a more accurate representation of a company&#8217;s size and financial health, aiding investors in making more informed decisions.</li>
</ul>
</li>
</ol>
Redditor ShadowLiberal said &#8220;the definition of a small/mid/large cap should really be readjusted for inflation,&#8221; citing his reasoning as to why small caps may be underperforming:
<figure class="wp-block-embed is-type-rich is-provider-reddit wp-block-embed-reddit"> 
<div class="wp-block-embed__wrapper">
<blockquote class="reddit-embed-bq" ><a href="https://www.reddit.com/r/stocks/comments/1dgr59c/comment/l8v4vjm/">Comment</a> by<a href="https://www.reddit.com/user/AbuSaho/">u/AbuSaho</a> from discussion<a href="https://www.reddit.com/r/stocks/comments/1dgr59c/small_cap_value_has_never_been_more_brutal/"><no value></no></a> in<a href="https://www.reddit.com/r/stocks/">stocks</a></blockquote>
<script async src="https://embed.reddit.com/widgets.js" charset="UTF-8"></script></div>
</figure>
<h2 class="wp-block-heading">Performance Discrepancies: Small Cap Value Vs. S&amp;P 500</h2>
The performance gap between small-cap value stocks and the S&amp;P 500 is a key factor in this debate. Notable points from the discussion include:
<ol>
<li>Underperformance:
<ul>
<li>Small-cap value stocks have lagged behind the S&amp;P 500 by 20%, raising concerns among investors. This underperformance prompts a reevaluation of investment strategies and benchmarks.</li>
</ul>
</li>
<li>Impact on Investment Decisions:
<ul>
<li>The outdated market cap definitions may mislead investors about the true potential and risk of small-cap stocks. Adjusting these definitions for inflation could lead to better investment decisions and portfolio allocations.</li>
</ul>
</li>
</ol>
Redditor Doin_the_Bulldance shed light on the indexation perspective, highlighting less liquidity as a key reason behind this discrepancy:
<figure class="wp-block-embed is-type-rich is-provider-reddit wp-block-embed-reddit"> 
<div class="wp-block-embed__wrapper">
<blockquote class="reddit-embed-bq" ><a href="https://www.reddit.com/r/stocks/comments/1dgr59c/comment/l8sso5k/">Comment</a> by<a href="https://www.reddit.com/user/AbuSaho/">u/AbuSaho</a> from discussion<a href="https://www.reddit.com/r/stocks/comments/1dgr59c/small_cap_value_has_never_been_more_brutal/"><no value></no></a> in<a href="https://www.reddit.com/r/stocks/">stocks</a></blockquote>
<script async src="https://embed.reddit.com/widgets.js" charset="UTF-8"></script></div>
</figure>
<h2 class="wp-block-heading">Portfolio Implications For Investors</h2>
<ol>
<li>Portfolio Reassessment:
<ul>
<li>Investors might need to reassess their portfolios based on new, inflation-adjusted market cap definitions. This adjustment could uncover new growth opportunities and better risk management.</li>
</ul>
</li>
<li>Benchmark Accuracy:
<ul>
<li>More accurate market cap categories would improve benchmark comparisons, offering clearer insights into market performance. Investors could benefit from a more precise understanding of market trends and sector performance.</li>
</ul>
</li>
</ol>
The Reddit discussion highlights a critical issue in the investment world: the need to adjust market cap definitions for inflation. 
With small-cap value stocks significantly underperforming the S&amp;P 500, this debate underscores the importance of evolving financial metrics to reflect current economic realities. Investors should consider these insights when planning their portfolios to ensure they are aligned with modern market conditions.
Read Next: <a href="https://www.benzinga.com/markets/equities/24/06/39245115/us-stocks-are-overpriced-warns-peter-schiff-if-you-know-you-cant-do-your-own-homework-then">US Stocks Are &#8216;Overpriced&#8217;, Warns Peter Schiff: &#8216;If You Know You Can&#8217;t Do Your Own Homework Then …&#8217;</a>
Image generated using artificial intelligence via Midjourney.

As Small Caps Lag 20% Behind S&P 500, Reddit User Says Market Cap Definitions 'Should Really Be Readjusted For Inflation'

Here's a quick look at some of the top performing dividend stocks, year to date, that have a market cap of $1 billion or less.

E-House (China) Holdings (NYSE: <a class="ticker" href="/stock/ej#NYSE">EJ</a>) shares are trading about 38% higher year to date despite pulling back more than 4% last week. The real estate company announced in December that it would merge with China Real Estate Information Corp. (NASDAQ: <a class="ticker" href="/stock/cric#NASDAQ">CRIC</a>). The dividend yield is 4.2% and the long-term EPS growth forecast is 30.7%. E-House is based in Shanghai and was founded in 2000. But the stock has narrowly underperformed CRIC over the past six months.

KB Home (NYSE: <a class="ticker" href="/stock/kbh#NYSE">KBH</a>) is up almost 53% in the past month. The stock got a boost earlier this month when competitor Lennar (NYSE: <a class="ticker" href="/stock/len#NYSE">LEN</a>) announced a positive earnings surprise. Last week CBS (NYSE: <a class="ticker" href="/stock/cbs#NYSE">CBS</a>) CEO said he would leave the KB Home board. This Los Angeles-based homebuilder has a market cap of $867.3 million, a dividend yield of 2.5% and a long-term EPS growth forecast of 10.3%. The stock has outperformed competitors Lennar and Pulte Group (NYSE: <a class="ticker" href="/stock/phm#NYSE">PHM</a>) year to date.

Mahanagar Telephone Nigam (NYSE: <a class="ticker" href="/stock/mte#NYSE">MTE</a>) is more than 45% higher year to date, including more than 14% just in the past week. The company provides telecommunication services in Delhi and Mumbai, and revenues for the fiscal year are forecast to be 5.6% higher year over year. The company was founded in 1986. It has a market cap of $381.1 million and its dividend yield is 3.5%. But the stock has underperformed the broader markets over the past six months.

Noranda Aluminum (NYSE: <a class="ticker" href="/stock/nor#NYSE">NOR</a>) shares are trading about 33% higher year to date and rose 6% in the past week. Full-year revenues are forecast to be 20.6% higher year over year when the Tennessee-based company reports on February 15. The company has a market cap of $738.2 million, a long-term EPS growth forecast of 16.2% and a dividend yield of 1.1%. Over the past six months, the stock has outperformed larger peers Alcoa (NYSE: <a class="ticker" href="/stock/aa#NYSE">AA</a>) and Aluminum Corp. of China (NYSE: <a class="ticker" href="/stock/ach#NYSE">ACH</a>).

Privatebancorp (NASDAQ: <a class="ticker" href="/stock/pvtb#NASDAQ">PVTB</a>) is about 31% higher than a month ago, but more than 12% below the 52-week high. The company just reported better-than-expected Q4 EPS and a sizable decrease in nonperforming loans over the past year. This regional bank is based in Chicago and has a market cap of $1.0 billion. Its dividend yield is 0.3%. Over the past six months, the stock has outperformed competitors Fifth Third Bancorp (NASDAQ: <a class="ticker" href="/stock/fitb#NASDAQ">FITB</a>) and Northern Trust (NASDAQ: <a class="ticker" href="/stock/ntrs#NASDAQ">NTRS</a>).

SouFun Holdings (NYSE: <a class="ticker" href="/stock/sfun#NYSE">SFUN</a>) is up almost 49% in the past month and more than 10% higher than a year ago. The Chinese company operates an internet portal dedicated to real estate. Earnings are forecast to show a 57% gain for 2011, its sixth straight year of profit improvement. The dividend yield is 9.9% and the market cap is $372.7 million. The long-range EPS growth forecast is 36.7%. Over the past six months, the stock has outperformed competitor Sohu.com (NASDAQ: <a class="ticker" href="/stock/sohu#NASDAQ">SOHU</a>).

Tsakos Energy Navigation (NYSE: <a class="ticker" href="/stock/tnp#NYSE">TNP</a>) is more than 37% higher year to date, including more than 6% in the past week. The company has paid consecutive quarterly dividends since 2002. This Greek tanker operator has a $302.7 million market cap and a dividend yield of 9.2%. Revenue for the fiscal year is forecast to decline 2.6%. The stock has outperformed competitors Frontline (NYSE: <a class="ticker" href="/stock/fro#NYSE">FRO</a>) and Teekay (NYSE: <a class="ticker" href="/stock/tk#NYSE">TK</a>), as well as the broader markets, over the past three months.

See also: <a href="http://www.benzinga.com/trading-ideas/long-ideas/12/01/2297576/benzingas-microcap-movers-for-friday-january-27-2012">Benzinga's Microcap Movers for Friday January 27, 2012</a>.

<div id="action-items">ACTION ITEMS:

Bullish: Investors interested in exchange traded funds focused on small caps might want to consider the following trades:

<ul><li>Rydex S&amp;P Small Cap 600 Pure Value (NYSE: <a class="ticker" href="/stock/rzv#NYSE">RZV</a>) is up about 11% year to date.</li>
<li>SPDR S&amp;P 600 Small Cap Value ETF (NYSE: <a class="ticker" href="/stock/slyv#NYSE">SLYV</a>) is up almost 9% year to date.</li>
<li>iShares MSCI EAFE Small Cap Index (NYSE: <a class="ticker" href="/stock/scz#NYSE">SCZ</a>) is up almost 9% year to date.</li>
</ul>Bearish: Traders may prefer to consider these alternative positions:

<ul><li>ProShares Short Small Cap 600 (NYSE: <a class="ticker" href="/stock/sbb#NYSE">SBB</a>) is trading near the 52-week low.</li>
<li>ProShares UltraShort Small Cap 600 (NYSE: <a class="ticker" href="/stock/sdd#NYSE">SDD</a>) is trading near the 52-week low.</li>
<li>ProShares UltraPro Short Russell 2000 (NYSE: <a class="ticker" href="/stock/srty#NYSE">SRTY</a>) is trading near the 52-week low.</li>
</ul>Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.</div>

Jack in the Box (NYSE: <a class="ticker" href="/stock/jack#NYSE">JACK</a>) is scheduled to report fiscal fourth-quarter 2011 results today, November 21, after the markets close. Investors will be looking for signs of a turnaround after the company missed earnings per share estimates in the past two quarters and revenue declined in the past three quarters. Investors also hope the quick-service restaurateur will not follow in the footsteps of competitor Wendy's (NYSE: <a class="ticker" href="/stock/wen#NYSE">WEN</a>), which posted a wider net loss and missed revenue expectations last week.

The consensus forecast calls for Jack in the Box to report earnings of $0.40 per share, which would be the same as in the fourth quarter of last year. That EPS estimate is a penny lower than just 60 days ago. The forecast for full-year earnings calls for $1.53 per share, down from $1.59 a year ago. Note that Jack in the Box has fallen short of consensus estimates in three of the past five quarters.

Analysts also expect the company to report that fourth-quarter revenues decreased 12.7% from a year ago to $491.5 million, while full-year revenues total $2.2 billion, a 5.0% decline. Looking ahead to the current quarter, revenues are anticipated to be just 4.7% lower year over year.

The Company

The San Diego-based company operates and franchises more than 2,700 Jack in the Box quick-service restaurants and Qdoba Mexican Grill fast-casual dining restaurants in the United States. Jack in the Box was founded in 1951 and now has a market cap of $957.8 million.

During the three months that ended in September, the company saw one silver lining in its otherwise disappointing third-quarter results: same-store sales increased 4.7% due to ongoing efforts to enhance the Jack in the Box brand. More recently, Jack in the Box said eggnog and pumpkin pie shakes would be back for the holidays, and it added mini cookies to its menu.

Performance

The company has a long-term earnings per share growth forecast of 12.7%. The P/E ratio is lower than the industry average, while the PEG ratio is in line with the average. Analysts have a mean price target on the stock that is almost 13% higher than the current share price.

The share price has not recovered from the sell-off in August but has risen almost 9% in the past three months and is up about 13% from the 52-week low. It is above the 50-day moving average. Over the past six months, the stock has underperformed competitors Chipotle Mexican Grill (NYSE: <a class="ticker" href="/stock/cmg#NYSE">CMG</a>), Wendy's, but its performance was in line with Yum! Brands (NYSE: <a class="ticker" href="/stock/yum#NYSE">YUM</a>) and better than the broader markets.

Action Items:

Bullish: Investors interested in exchange traded funds invested in Jack in the Box might want to consider the following trades:

<ul><li>SPDR S&amp;P 600 Small Cap Value ETF (NYSE: <a class="ticker" href="/stock/slyv#NYSE">SLYV</a>) is more than 21% higher than a recent 52-week low.</li>
<li>iShares Morningstar Small Value Index (NYSE: <a class="ticker" href="/stock/jkl#NYSE">JKL</a>) is more than 20% higher than a recent 52-week low.</li>
<li>PowerShares S&amp;P SmallCap Consumer Discretionary (NASDAQ: <a class="ticker" href="/stock/pscd#NASDAQ">PSCD</a>) is about 19% higher than a recent 52-week low.</li>
</ul>

Bearish: Traders may want to consider these alternative positions:

<ul><li>Chipotle Mexican Grill (NYSE: <a class="ticker" href="/stock/cmg#NYSE">CMG</a>) is more than 46% higher year to date.</li>
<li>McDonald's (NYSE: <a class="ticker" href="/stock/mcd#NYSE">MCD</a>) is more than 23% higher year to date.</li>
</ul>

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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SPDR S&P 600 Small Cap Value ETF (based on S&P SmallCap Value Index--symbol--CVK

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