Stock Market Size Categories
The common stocks of public companies are categorized into one of four size categories based on the size of the company's market capitalization (i.e. number of shares outstanding times the stock market price per share):
- Micro caps
- Small caps
- Mid caps
- Large caps
This article explains those categories.
There is no universal rule as to what constitutes a "large cap" stock or a "small cap" stock. So the information on this page contains the "rule of thumb" descriptions that we have adopted on our website rather than absolute rules that apply all the time.
These size categories are important to understand because as a general rule, large cap stocks often perform differently, and have different characteristics, than small and mid cap stocks. And micro cap stocks are a different animal all-together.
U.S. stock market typical sizes
Micro cap stocks
The term micro cap stock generally refers to the stock of public companies in the United States which have a market capitalization of less than $300 million. These companies are generally too small for most large institutional investors to invest in, such as the large mutual funds or large hedge funds. As a general rule, micro cap stocks have tended to under perform the stock market as a whole, probably because of the lack of interest from large institutional investors.
Small cap stocks
A small cap stock is generally defined as the stock of a publicly traded company that has a market capitalization ranging from $300 million to about $2 billion. The two most popular small cap indexes that are widely tracked are the S&P Smallcap 600 Index, and the Russell 2000 Index. The S&P Smallcap 600 Index is determined by a committee at Standard & Poor's, and includes 600 small caps that the committee decides are representative of small cap stocks. The Russell 2000 Index consists of the smallest 2,000 stocks in the Russell 3000 Index, which consists of the largest 3,000 stocks on the U.S. stock market.
Mid cap stocks
A mid cap stock is a company with a market capitalization between $2 billion and $10 billion. The two most popular mid cap indexes that are widely tracked are the S&P Midcap 400 Index, and the Russell Midcap Index. The S&P Midcap 400 Index is determined by a committee at Standard & Poor's, and includes 400 mid caps that the committee decides are representative of mid cap stocks. The Russell Midcap Index consists of the smallest 800 stocks in the Russell 1000 Index, which is made up of the 1,000 largest U.S. stocks.
Large cap stocks
A large cap stock is a company with a market capitalization greater than $10 billion. There are several large cap indexes that are widely tracked, including the S&P 500 Index, the Nasdaq 100 Index and the Dow Jones Industrial Average. The S&P 500 Index consists of 500 stocks selected by a committee at Standard & Poor's to be representative of the large cap stocks on the U.S. stock market. The Nasdaq 100 Index, on the other hand, only consists of the 100 largest, non-financial stocks traded on the NASDAQ stock exchange, and is heavily tilted towards technology stocks (over 50%). The Dow Jones Industrial Average consists of 30 hand picked, bellwether American companies like Coca-Cola and IBM. Throughout stoxray.com, we use the S&P 500 Index as our benchmark large cap index.
Many people refer to the Russell 1000 Index as a large cap index, but it is actually a blend of large and mid cap stocks. The Russell 1000 Index consists of the largest 1,000 stocks on the U.S. stock market, and it is a widely followed index. The Russell 1000 Index is comparable to the combination of the S&P 500 Index and the S&P Midcap 400 Index (S&P does actually publish a S&P 900 Index, which is literally the smashing together of the S&P 500 Index and the S&P Midcap 400 Index).
Summary of the U.S. stock market
Here is a summary of the U.S. common stocks in our database based on these size categories:
| Category | Stock count | Total market cap | % |
|---|---|---|---|
| Large cap | 848 | $66T | 91.20% |
| Mid cap | 1,059 | $5.02T | 6.83% |
| Small cap | 1,405 | $1.27T | 1.73% |
| Micro cap | 2,223 | $180B | 0.25% |
| Total | 5,535 | $73T | 100.00% |
Index size classifications
The above size classifications are "rule of thumb" classifications that many people use to classify stocks, including our website. However, stock market indexes are not built using these classifications.
Each of the different major index providers (S&P, NASDAQ, FTSE, MSCI, etc...) uses their own methodology to build a "large cap" index. Some index providers will include in their "large cap" index the top 500 stocks based on market capitalization. Other index providers establish cutoffs between the size categories by using target percentages of the total available market capitalization. For example, MSCI generally uses the following guidelines when building a stock index:
| Category | % of total market capitalization |
|---|---|
| Large cap | 70% |
| Mid cap | 15% |
| Small cap | 14% |
| Micro cap | 1% |
| Total | 100% |
The process begins with ranking all U.S. stocks based on market capitalization. Starting at the top (the largest ranked stocks), and moving downwards, the "large cap" index will select stocks until the index has selected enough stocks so that the "large cap" index includes stocks that make up 70% of the U.S. stock market. Any stock included in this index becomes a "large cap" stock. The process is the same for creating the "mid cap" and "small cap" indexes.
S&P judgmentally categorizes stocks into size categories using the following guidelines. Unadjusted company market capitalization of US$ 6.1 billion or more for the S&P 500 Index (large cap stocks), US$ 1.6 billion to US$ 6.8 billion for the S&P MidCap 400, and US$ 450 million to US$ 2.1 billion for the S&P SmallCap 600. These ranges are reviewed from time to time to assure consistency with market conditions.
Other classifications
There are a few other terms that we use that are size related.
Mega cap stocks
A mega cap stock is one of the top 50/100 largest companies on the stock market. A mega cap stock is a size classification that is really a subset of "large cap" stocks. The exact definition varies, but mega cap stocks are generally defined as the stocks of publicly traded companies that have market capitalizations over $50 billion. But each mega cap index uses a slightly different cut-off. Mega cap stocks are a subset of large cap stocks. For example, the S&P 500 Top 50 tracks the 50 largest companies in the S&P 500, and has a medium market capitalization of $165 billion, with the smallest having a market capitalization of $79 billion (as of 1/31/2017).
Total market
There are a handful of equity ETFs that track indexes that replicate the entire stock market as a whole. These indexes are referred to as "total market indexes". The most common total market index is probably the Russell 3000 Index, which tracks the largest 3,000 stocks on the U.S. stock market. Another total market index is the CRSP U.S. Total Market Index, which tracks roughly 4,000 stocks across mega, large, small and micro capitalizations, representing nearly 100% of the U.S. investable equity market.
ETFs that track total market indexes, like VTI, the Vanguard Total Stock Market ETF, are extremely popular with investors who believe in simple, low cost index investing, because total market ETFs like VTI include exposure to small and mid cap stocks, and thus they tend to outperform large cap ETFs like SPY over long periods of time. Vanguard is famous for telling people that most investors should just buy a few simple, low cost ETFs, like VTI, and not get caught up in trying to building complex portfolios.
Multi-cap stocks
Throughout our website, we assign many ETFs to a category we call "Multi-cap". This means that the ETF can select stocks from the entire stock market, regardless of the market capitalization of the stock. But the ETF only selectively buys some of those stocks. So the ETF is not a "total market" ETF, because total market ETFs literally try to replicate the performance of the entire stock market, whereas a "multi-cap" ETF is selectively buying only some of those stocks. ETFs classified as "multi-cap" ETFs are typically actively managed ETFs or smart beta ETFs that are attempting to outperform the entire stock market.