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

In a recent discussion on Reddit, users are debating the necessity of adjusting market cap definitions to account for inflation.

This topic has garnered attention as small-cap value stocks lag significantly behind the S&P 500, underperforming by over 20%, as highlighted by Redditor AbuSaho.

Also Read: S&P 500 Index Year-End Target Raised To 5,600 By Goldman Sachs On Strong Tech Earnings And Valuation Expansion

Chart: Benzinga Pro

The SPDR S&P 600 Small Cap Value ETF SLYV, representing small cap value stocks in the U.S., is down 8.31% YTD, while the broad U.S. equity market-tracking SPDR S&P 500 ETF SPY has gained 14.19% over the same period.

The Call For Change: Adjusting Market Cap Definitions

One Redditor argues that market cap definitions are outdated and should be revised to reflect the current economic landscape.

The key points include:

1. Outdated Thresholds:
   • 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.
2. Need for Adjustment:
   • The Redditor suggests revising market cap thresholds to better align with today’s inflation-adjusted values. They believe that this change could provide a more accurate representation of a company’s size and financial health, aiding investors in making more informed decisions.

Redditor ShadowLiberal said “the definition of a small/mid/large cap should really be readjusted for inflation,” citing his reasoning as to why small caps may be underperforming: