Small caps saw the most PE expansion since April ‘09
In November, the forward PE for small caps hit a 20-month high, jumping nearly two multiple points to 18.4x from 16.6x as the Russell 2000 rallied 11%. This was the biggest monthly rise since April 2009 and more than double the multiple expansion of any other size segment during November. As a result, small caps now trade at a double digit premium to their historical median since 1985 across all of the five valuation metrics we track, led by PE to growth at a 60% premium. The current PE is 21% above its historical median of 15.2x since 1985, and near the cycle-high of 19.1x in 2014. Overall, valuations across size segments expanded in November as all size segments posted gains for the month.
Small caps now trade above their historical premium to large. Based on forward PE, small caps went from trading in-line to large caps to trading at a 9% premium in November, higher than the historical 7% median premium since 1985 (for the first time since mid-2015) but well below the most recent 30% peak in 2011.