An identifying characteristic of a bull market is the superior performance of small-capitalization stocks. It has been happening again this time around — all over the world.

This bull trend started on the same day, March 9, 2009, in almost all markets. Since then, the London Financial Times FTSE global all-cap index of 7,300 stocks has risen by 82%; the S&P 1500 composite index of U.S. stocks has risen by 74%; and the S&P/TSX composite index (210 stocks) has risen by 58%.

Compare those gains with the corresponding small-cap indices: the FTSE global small-cap index (4,500 stocks) has climbed by 102%; S&P’s 600 U.S. small-cap index has increased by 98%; and the S&P/TSX small-cap index of 181 stocks has risen by 93%.

It is clear from these num-bers that Cana-da is trailing both the world and its No. 1 trading partner. It is also evident, both in the U.S. and Canada, that earnings on the large-company indices are still stumbling. Also, income trusts in Canada are trailing.

The bull market started with its typical pattern: stock prices rising while corporate earnings were still dropping. A significant point is that Canadian small-cap earnings started rising before large-cap company earnings (the S&P/TSX 60 index) and mid-sized companies (the S&P/TSX completion index).

To make the large/small contrast sharper, the earnings recovery by Canadian small-cap and mid-cap indices has been steady and — as usual — fast. In contrast, the earnings recovery by large-cap stocks faltered in March.

Earnings on a trailing 12-month basis were at lows for the S&P/TSX 60 large-cap index in January; for the S&P/TSX completion (mid-cap) index, lows were in October 2009.

S&P/TSX small-cap index earnings hit bottom this past August. Let’s rephrase that: there were no earnings; it was a loss of $8.3 billion ($41.82, when adjusted to the index). As of March 19, the small-cap index’s loss had shrunk to $2.4 billion ($10.33, adjusted). The earnings situation is improving — and the rise in prices anticipated that.

This shows, once again, that small-cap stocks are the swing element in the market — biggest losers in a bear market; biggest gainers when the economy revives.

So far, though, the big gain in actual earnings has been among mid-cap stocks. Earnings on the S&P/TSX completion index increased by 211% from October to the end of February, and by late March had gained 464%. In comparison, S&P/TSX 60 index earnings gained 27% from November to February, but then dropped slightly in March.

Income trusts are faring poorly. Index earnings hit a low in November, gained a bit in December, and slid back to a new low in late March.

The small-cap index’s 181 stocks range in size from Toromont Industries Ltd. ($2.2-billion market cap) to Kingsway Financial Services Inc. ($85 million).

The 150 stocks in the completion index range in size from Crescent Point Energy Corp. ($8.1 billion) to Forzani Group Ltd. ($430 million).

The S&P/TSX 60 is, as usual, dominated by the banks, with Royal Bank of Canada at the top ($84.4 billion). No. 60 is Biovail Corp. ($2.6 billion). IE