What Is Market Breadth? Definition and Example
What market breadth measures, the common breadth indicators, and what a narrow market looked like in the year to Sep 30, 2026.
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What Is the IWM/SPY Ratio? Definition and Example
The IWM/SPY ratio compares small‑cap stocks with large caps. Here is how to read it, what small‑cap underperformance has looked like, and how investors use it.
Key takeaways
- The IWM/SPY ratio divides the iShares Russell 2000 ETF (small caps) by the SPDR S&P 500 ETF (large caps); a falling ratio means small caps are lagging.
- In Exent’s data, IWM returned 153.6% in the 10 years to Sep 30, 2026, against 312.9% for SPY, so the total-return ratio fell about 39%.
- Small caps trailed SPY in 8 of the 9 calendar years from 2017 to 2025; 2020 was the exception.
- A rising ratio is often read as broad risk appetite, a falling one as caution or a narrow, large-cap-led market. It is context, not a timing signal.
Market risk reading, cross‑asset context and an events calendar: see Exent →
What is the IWM/SPY ratio?
The IWM/SPY ratio is the price of the iShares Russell 2000 ETF divided by the price of the SPDR S&P 500 ETF. It tracks how roughly 2,000 smaller US companies are doing relative to the 500 large companies in the S&P 500 index. The level means nothing on its own; the direction does.
How is it calculated?
Ratio = IWM price ÷ SPY price. To compare a period, use total returns: ratio change = (1 + IWM return) ÷ (1 + SPY return) − 1. Total returns matter because the two funds pay different dividends.
Example: small caps vs large caps to Sep 2026
| Period to Sep 30, 2026 | IWM total return | SPY total return | Ratio change |
|---|---|---|---|
| 1 year | 16.0% | 15.7% | +0.3% |
| 3 years | 62.6% | 85.0% | −12.1% |
| 5 years | 35.1% | 90.0% | −28.9% |
| 10 years | 153.6% | 312.9% | −38.6% |
Source: Exent’s data, month‑end total returns. Small caps also fell harder in stress: IWM dropped 40.8% peak to trough in the COVID crash, against 34.1% for SPY. See the small‑cap backtest for the year‑by‑year record.
What does it mean when small caps underperform?
It means gains are concentrated in the largest companies, a sign of weak market breadth. Small companies tend to depend more on borrowing and on the domestic economy, so investors often read the ratio as a risk‑on / risk‑off gauge. For a portfolio, it shows whether a small‑cap tilt (the size factor) has helped or hurt. The ratio is a widely watched cross‑asset signal. More context: what a narrow rally means.
Common mistakes
- Assuming small caps are “due” after a long lag. A cheap ratio can stay cheap for years.
- Reading a one-week move as a trend.
- Comparing price-only charts over long periods, which ignores dividends.
- Treating small caps as a diversifier: IWM had a 0.84 correlation with SPY over the 60 months to Sep 30, 2026.
Follow small caps vs the S&P 500 with Exent
- Market intel’s regular written notes follow small caps vs the S&P 500 among other cross‑asset ratios.
- Its market drivers view compares SPY, QQQ, DIA and IWM year to date, and the Magnificent 7 with the other 493 S&P 500 stocks.
Frequently asked questions
Large companies are rising faster than small ones, so market gains are concentrated at the top. Investors often read it as caution about growth, credit or borrowing costs.
Not by itself. The ratio fell over most of the decade to 2026 while the S&P 500 more than quadrupled in total-return terms.
IWM beat SPY in one of the nine calendar years from 2017 to 2025, in 2020.
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Market intel provides a Risk ON / Neutral / Risk OFF reading from four pillars, cross-asset analysis, an events calendar and regular written notes. Context for reviewing a plan, not a crash forecast.
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Educational content, not investment advice. Examples are illustrative; past performance does not guarantee future results.