The Market’s Malaise With Large-Cap Stocks

For two years, the Dow Jones Industrial Average hasn’t done much. In 2003, the index recovered significantly, but, over the last two years, the index has been stuck in a range between 10,000 and 11,000.

This serves to illustrate the market’s malaise with large-cap stocks. I don’t see any change in this trend over the near term.

Wal-Mart’s been making some noise of late, as its retail sales are improving, but, the fact of the matter is, the stock is way down from its previous levels in 2000.

IBM is in the same boat. This stock hasn’t done a thing since 2002. General Electric hasn’t fared any better either. Its stock price is still well below its high set in 2000.

One of the only Dow stocks to do well over the last few years, with the exception of Exxon Mobil, is Caterpillar (CAT). This stock has actually been accelerating since the mid-1990s. It took a rest between 2000 and 2003, and it is now experiencing a solid uptrend. CAT recently completed a two-for-one stock split back in July, with a lot of its growth coming from international customers.

The point of this analysis is to illustrate the stock market’s lackluster performance with large-cap stocks over the last few years. The fact that our blue-chip stocks aren’t doing much is, in my mind, worrisome. No leadership means a weak market for investors.

So, strategy wise, you got to be looking at small- and mid-cap stocks. Naturally, this means that your investment risk is higher. Not only do you need to be diversified, but you also need to maintain strong risk management to preserve your capital.

Many analysts expect low, double-digit growth in corporate earnings for 2006. I’m sure this is likely, but I still think the large- cap market will be devoid of leadership, providing continued lackluster results. The good news is that wealth creating opportunities with smaller companies (my normal bias) are plentiful.