Backbone of our Economy

It is common knowledge that the backbone of our economy is formed by small businesses. It is also widely understood that the stock market is often a leading indicator to changes in our economy.

That being said, it is logical to conclude that investors would keep a sharp eye on the performance of small business stocks as an early indication of potential changes in the stock market.

In a rising stock market, the S-Fund (Wilshire 4500), representing small and medium sized companies, significantly outperforms the C-Fund (S&P 500) which represents large companies. Conversely, the S-Fund suffers higher losses during a falling stock market.

In the chart below you can see that the S-Fund has dropped 1.34% in the last 15 trading days while the C-Fund has risen 1.03%. This could just be a bump in the road but it certainly bears watching.
(Click on Image to enlarge)

Small Business the backbone of the economy