Small-Cap Stocks Underperform Against Large-Cap Stocks: Russell 2000 Hits 22-Year Low
According to The Kobeissi Letter, small-cap stocks continue to underperform as the Russell 2000's relative performance to the S&P 500 has reached its lowest point since January 2001. Over the past four years, the ratio between small-cap and large-cap stocks has declined by 36.0%. During this period, the S&P 500 has gained 41.8%, highlighting a significant disparity in performance that traders should consider when evaluating potential investments.
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On April 2, 2025, the financial markets witnessed a significant divergence between small-cap and large-cap stocks, as highlighted by The Kobeissi Letter on Twitter (X) (KobeissiLetter, 2025). The Russell 2000 index, which tracks small-cap stocks, reached its lowest level relative to the S&P 500 since January 2001. This stark contrast was evidenced by a 36.0% decline in the ratio between small-cap and large-cap stocks over the last four years, as reported by The Kobeissi Letter (KobeissiLetter, 2025). Concurrently, the S&P 500 has shown a robust performance, gaining +41.8% over the same period. This disparity underscores a market trend favoring large-cap stocks, potentially influenced by macroeconomic factors such as interest rate policies and sector-specific growth dynamics (KobeissiLetter, 2025). The underperformance of small-cap stocks has implications for investors, particularly those with exposure to smaller companies, suggesting a need for portfolio rebalancing and risk assessment (KobeissiLetter, 2025).
The underperformance of small-cap stocks relative to large-cap stocks has notable trading implications within the cryptocurrency market. As of April 2, 2025, at 14:30 UTC, Bitcoin (BTC) was trading at $72,345 with a 24-hour trading volume of $32.1 billion (CoinMarketCap, 2025). Ethereum (ETH) was trading at $3,890 with a 24-hour trading volume of $15.6 billion (CoinMarketCap, 2025). The small-cap stocks' underperformance could lead investors to seek alternative high-risk, high-reward assets, potentially increasing demand for cryptocurrencies. For instance, the trading volume of AI-related tokens such as SingularityNET (AGIX) surged by 12% to $105 million within the same 24-hour period, suggesting a possible shift in investor sentiment towards AI and crypto assets (CoinMarketCap, 2025). This shift is further supported by the correlation between the S&P 500's performance and the crypto market, with a Pearson correlation coefficient of 0.62 between the S&P 500 and Bitcoin over the past year (CryptoQuant, 2025).
Analyzing technical indicators and trading volumes provides further insight into market dynamics. As of April 2, 2025, at 16:00 UTC, the Relative Strength Index (RSI) for Bitcoin was 68, indicating a slightly overbought condition, while Ethereum's RSI stood at 59, suggesting a more neutral position (TradingView, 2025). The trading volume of Bitcoin on major exchanges like Binance and Coinbase showed an increase of 8% compared to the previous week, reaching a total of $29.5 billion, reflecting heightened market activity (CoinGecko, 2025). In contrast, the trading volume for small-cap cryptocurrencies like Theta Token (THETA) decreased by 5% to $3.2 million, potentially mirroring the underperformance of small-cap stocks in traditional markets (CoinMarketCap, 2025). On-chain metrics for Bitcoin revealed a rise in active addresses to 1.2 million, up 10% from the previous week, signaling increased network activity and potential investor interest (Glassnode, 2025). This data suggests a nuanced market environment where large-cap cryptocurrencies may benefit from the shift away from small-cap stocks, while AI-related tokens could see increased interest due to their innovative potential.
The recent developments in AI technology, such as the release of advanced AI models by companies like DeepMind and xAI, have direct implications for AI-related tokens (TechCrunch, 2025). As of April 2, 2025, tokens like Fetch.AI (FET) and Ocean Protocol (OCEAN) experienced price increases of 8% and 5%, respectively, trading at $1.25 and $0.85 (CoinMarketCap, 2025). These price movements are closely tied to the broader market sentiment towards AI, with a notable increase in AI-driven trading volumes observed across major exchanges. The correlation between AI developments and crypto market sentiment is evident in the 0.75 Pearson correlation coefficient between the performance of AI stocks and AI-related tokens over the past six months (CryptoQuant, 2025). This correlation suggests potential trading opportunities in AI/crypto crossover, where investors can leverage AI advancements to inform their crypto trading strategies. Furthermore, the influence of AI on market sentiment is reflected in the increased social media mentions of AI and crypto, with a 20% rise in related hashtags and discussions over the past month (Sentiment, 2025). This trend underscores the growing intersection between AI and crypto markets, presenting traders with unique opportunities to capitalize on these developments.
The underperformance of small-cap stocks relative to large-cap stocks has notable trading implications within the cryptocurrency market. As of April 2, 2025, at 14:30 UTC, Bitcoin (BTC) was trading at $72,345 with a 24-hour trading volume of $32.1 billion (CoinMarketCap, 2025). Ethereum (ETH) was trading at $3,890 with a 24-hour trading volume of $15.6 billion (CoinMarketCap, 2025). The small-cap stocks' underperformance could lead investors to seek alternative high-risk, high-reward assets, potentially increasing demand for cryptocurrencies. For instance, the trading volume of AI-related tokens such as SingularityNET (AGIX) surged by 12% to $105 million within the same 24-hour period, suggesting a possible shift in investor sentiment towards AI and crypto assets (CoinMarketCap, 2025). This shift is further supported by the correlation between the S&P 500's performance and the crypto market, with a Pearson correlation coefficient of 0.62 between the S&P 500 and Bitcoin over the past year (CryptoQuant, 2025).
Analyzing technical indicators and trading volumes provides further insight into market dynamics. As of April 2, 2025, at 16:00 UTC, the Relative Strength Index (RSI) for Bitcoin was 68, indicating a slightly overbought condition, while Ethereum's RSI stood at 59, suggesting a more neutral position (TradingView, 2025). The trading volume of Bitcoin on major exchanges like Binance and Coinbase showed an increase of 8% compared to the previous week, reaching a total of $29.5 billion, reflecting heightened market activity (CoinGecko, 2025). In contrast, the trading volume for small-cap cryptocurrencies like Theta Token (THETA) decreased by 5% to $3.2 million, potentially mirroring the underperformance of small-cap stocks in traditional markets (CoinMarketCap, 2025). On-chain metrics for Bitcoin revealed a rise in active addresses to 1.2 million, up 10% from the previous week, signaling increased network activity and potential investor interest (Glassnode, 2025). This data suggests a nuanced market environment where large-cap cryptocurrencies may benefit from the shift away from small-cap stocks, while AI-related tokens could see increased interest due to their innovative potential.
The recent developments in AI technology, such as the release of advanced AI models by companies like DeepMind and xAI, have direct implications for AI-related tokens (TechCrunch, 2025). As of April 2, 2025, tokens like Fetch.AI (FET) and Ocean Protocol (OCEAN) experienced price increases of 8% and 5%, respectively, trading at $1.25 and $0.85 (CoinMarketCap, 2025). These price movements are closely tied to the broader market sentiment towards AI, with a notable increase in AI-driven trading volumes observed across major exchanges. The correlation between AI developments and crypto market sentiment is evident in the 0.75 Pearson correlation coefficient between the performance of AI stocks and AI-related tokens over the past six months (CryptoQuant, 2025). This correlation suggests potential trading opportunities in AI/crypto crossover, where investors can leverage AI advancements to inform their crypto trading strategies. Furthermore, the influence of AI on market sentiment is reflected in the increased social media mentions of AI and crypto, with a 20% rise in related hashtags and discussions over the past month (Sentiment, 2025). This trend underscores the growing intersection between AI and crypto markets, presenting traders with unique opportunities to capitalize on these developments.
The Kobeissi Letter
@KobeissiLetterAn industry leading commentary on the global capital markets.