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Dow Industrials at New Highs—But Other Indices Lag

Dow Industrials hits new highs, but other indices lag. In most recoveries, small caps notably outperform big caps, but this has not been the case with this recovery.

On just a numbers basis, it look like small caps have done well. Since the March bottom, the Russell 2000 has outperformed the S&P 500: 60 percent to 51 percent.

But:

1) the Russell also fell much more from peak to trough; and

2) While the Russell outperformed, it is less than is typical of a recovery, when small caps--who are smaller and more nimble than their bigger cousins--usually lead the way to a greater extent.

The reason we haven't seen dramatic outperformance from small caps is that:

1) the U.S. is in the unusual position of being the laggard in the global recovery, which is hurting prospects for small-cap companies (which are largely U.S.-based);

2) the weak dollar has given the growth advantage to companies with an export-led focus, which clearly favors mid- and large-cap stocks, particularly tech, materials and industrials; and

3) large-cap financials have been huge outperformers over small-cap financials thanks to government support.

You can see the weakness of the U.S. economy vs. the global economy in two company reports today: Rockwell Automation and McDonald's.

1) Keith Nosbusch, the CEO of Rockwell Automation, which generates about half of its revenues from overseas, sees Brazil, India, and China all returning to growth next year. He tells Dow Jones that "the emerging markets will lead the recovery."

Look at the Q3 sales figure for Rockwell. While all areas are weak, the U.S. is clearly the weakest.

  • U.S. down 30 percent
  • Europe down 22 percent
  • Asia down 17 percent
  • Latin America down 15 percent

The difference is even more glaring when you look at October sales at McDonald's, whose international operations make up 58 percent of total sales:

  • U.S. down 0.1 percent
  • Europe up 6.4 percent
  • Asia up 4.7 percent

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Questions? Comments? tradertalk@cnbc.com

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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