Small-cap stocks have failed to keep pace with market gains in 2023 and 2024, and forecasts for the conditions that could drive catch-up trades continue to be pushed back. Since November 2021, the Russell 2000 Index has gone more than 600 consecutive trading days without setting a new all-time high. Sohn, exchange-traded fund and industry strategist at Strategas. .RUT 5Y Mountain Russell 2000 has not reached a new high in more than two years. While major large-cap indexes have soared to record highs this year, the gap remains. While historical and technical indicators suggest the gap between large-cap and small-cap stocks may eventually narrow, that doesn’t appear to be happening anytime soon. “With yields remaining elevated, large-cap stocks continue to outperform small-cap stocks. [A] JC O’Hara, chief market technician at Roth MKM, said in a note to clients on Monday: “A simple long-term chart of the Russell 1000 Index versus the Russell 2000 Index shows that large-cap performance has reached multi-decade highs and may become worse. More tense. Change”. Prevent smaller stocks from rallying. “As we would expect, these are generally opportunities. When you see these disparities diverging and small caps and mid-caps really underperforming, you want to say ‘OK, we’re taking on these small caps. Higher risk pays. “I think, over the long term, that’s a bet I would make,” Miller told CNBC. But for investors who are less willing to look through small caps to find winners, he said, they may wait. Macro factors improve before stepping in and lifting the entire index. The cost of refinancing with debt can become prohibitive. ETF (IWM) 15%+ deposit cost. Hopes that the Federal Reserve will cut interest rates multiple times this year have dimmed after recent inflation data showed signs of stickiness. Cayla Seder, global macro multi-asset strategist at State Street, said the industry as a whole is likely to be in trouble before rate cuts begin, even for individual strong companies. “We really want to see areas where we can achieve profitable growth, and we haven’t really seen that much from small-cap stocks. Maybe once we really get the cuts, that becomes more attractive and you’ll see more of that.” There is a lot of demand to actually pick what small caps can actually achieve, but the current headwinds in interest rates feel like the burden of taking on that risk is too great,” Seid said. Even among the S&P 500, earnings growth has been concentrated among large technology companies. But of course, the reasons for cutting interest rates are equally important. If the economy slips into a recession, companies with weak balance sheets or banks that rely on loans to grow could be in trouble. Slowing economic growth, but easing inflation, may be the combination small stocks need. Reasons for Optimism The small-cap story may also get easier if the performance of the companies themselves and the economy as a whole improves. UBS Global Wealth Management said in a June preview report written by Mark Haefele and Solita Marcelli that it prefers small-cap stocks over large-cap stocks due to discounts and expected improvement in small-cap earnings. “The S&P 600 Small Cap Index trades at a discount of approximately 30% to the larger cap index (based on forward price-to-earnings ratios), and we continue to believe that rate cuts should be a positive catalyst for the small cap index. Small cap earnings performance is highly consistent with large cap stocks Related, high and low, we expect small-cap earnings growth to pick up this year. Small-cap stocks are also likely to benefit from growth in the global economy, which should benefit sectors such as manufacturing that feature heavily in small-cap indexes. Angelo Kourkafas, senior investment strategist at Jones, said the strong manufacturing PMI is tied to the outperformance of small-cap stocks. The Institute for Supply Management’s PMI has trended higher this year, briefly topping the key 50 level in March before falling back in April. to 49.2. Investors who really want to invest in small-cap stocks can also look outside the United States. Wolfe Research analyst Rob Ginsberg said in a note to clients on May 29 that global small-cap stocks have outperformed their U.S. peers. And brace for potential breakthroughs. —CNBC’s Michael Bloom contributed reporting.
