Large-Cap Stocks Outperform as Investors Seek Stability

The gap between large- and small-cap stocks has widened since the banking crisis, according to FTSE Russell.

Illustration by II

Illustration by II

Large-cap stocks have outpaced small-caps in 2023, as investors remain cautious amid growing macroeconomic concerns.

The Russell 1000 index, which represents the largest 1,000 companies in the Russell 3000, returned 8.8 percent for the year through April. Meanwhile, the Russell 2000 index, which represents the other, smaller 2,000 stocks in the Russell 3000, gained merely 0.9 percent.

In April alone, the Russell 1000 gained 1.2 percent, while the Russell 2000 lost 1.8 percent.

The gap between large-cap and small-cap equities is apparent across different factors. Growth stocks in the Russell 1000 returned 15.5 percent year-to-date through April, compared a the 4.8 percent gain for growth stocks in the Russell 2000. For value stocks, those in the Russell 1000 gained 2.5 percent, while those in the Russell 2000 lost 3.1 percent for the year through the end of April.

“Size has been an important thing,” Indrani De, head of global investment research at FTSE Russell, said at the firm’s 2023 Russell Reconstitution panel. “U.S. large caps outstripped the small-cap index in April as markets maintained a defensive undertone.”

De added that the recent banking crisis has widened the gap between large-cap and small-cap stocks. “Since the banking crisis, when it became very important that resilience matters, large-cap companies [have been] more resilient,” De said. “They have more access to liquidity when liquidity becomes an issue.”


Being a large-cap company is especially advantageous in the banking sector. In March, on the heels of the banking crisis triggered by the fall of Silicon Valley Bank, the banks in both the Russell 1000 and 2000 fell more than 18 percent. In April, banks in the Russell 1000 rebounded with an average gain of 3.2 percent, while those in the Russell 2000 lost another 6.8 percent.

“There is a stark difference [in] the size spectrum coming off the banking crisis,” De said. “When the banking crisis hit in the middle of March, the initial reaction of the market was to sell off banks. But once [investors] digested the information, they realized large-cap banks are solid and not really at risk.”

De added that the impact of inflation and interest rates will likely have less impact on the market in 2023 than they did last year. “Inflation is coming under control, which means that most of the changes on the rates front are behind us,” De said. “I think we’re at a turning point, from one or two key macro drivers impacting everything to things getting a little different across different [industries].”