Can the small-cap rally continue? Investors share their opinions and choices | Wilnesh News
Investors are now flocking to small-cap stocks, pushing the market to new highs this week. According to CNBC analysis, the Russell 2000 index hit 2,194.46 on Monday, its highest level since January 2022, when the index traded as high as 2,196.74. The index, which consists of U.S. small-cap companies that generate most of their revenue domestically, rose more than 3% on Tuesday, marking its fifth straight day of gains. Adam Turnquist, technical strategist at LPL Financial, said the moves “signal a potential breakout for this largely underperforming industry.” He also noted that the Russell 2000 has outperformed the S&P 500, the largest gap since November 2021. Turnquist noted that the U.S. consumer price index fell in June. He said the Fed has repeatedly said inflation needs to cool before it can cut interest rates, which is good news for small companies because they often rely on borrowing to fund operations. “As inflation cools, expectations for rate cuts from the Fed increase, lowering the cost of capital for companies that rely on debt,” Turnquist said. But he said that if interest rates remain high for a long time, a group of small Stocks likely to do well: Regional banks. “Right now, more immediate data points like CPI and Fed forecasts are driving small-cap stocks higher,” he added. “However, it remains to be seen whether a longer-term economic slowdown will offset recent moves higher at this time.” However, Turnquist warned that the outlook for small-cap growth stocks will be tougher than for small-cap value stocks because they are more sensitive to the health of the economy. With these factors in mind, picking stocks among small caps is critical, he said. “We don’t want to miss the peak of the price gains we’ve seen recently, but if economic weakness does persist, we want to position ourselves in the more profitable areas of small caps and remain cautious. The late-cycle characteristics of this economy and expected volatility The increase at this point requires a cautious and targeted approach,” he explained. Kelvin Wong, senior market analyst at Oanda, said in a report on July 16 that there is also the Trump factor. Huang said that if former US President Donald Trump wins the upcoming US election in November, he may adopt an America-first stance and focus on domestic businesses. “The ‘Trumpomics’ policy playbook is likely to come to the forefront under the slogan ‘Make America Great Again’, in which tax cuts and subsidies are likely to be targeted at small and medium-sized US domestic businesses, thereby boosting their profitability prospects. boosting bullish sentiment on the Russell 2000 Index,” Wong said. But Citi warned that based on historical record, small stocks tend to underperform before the first rate cut and only outperform the market after the first rate cut. “It also suggests that the sharp rotation from large-cap to small-cap stocks may not have much of a follow-on impact,” Citi analysts wrote in a July 11 note. How to invest in small-cap stocks Been investing in small-cap stocks Among investors are billionaire Stanley Druckenmiller, who revealed a huge bullish position in small-cap stocks last quarter. He purchased call options on 3,157,900 shares of the iShares Russell 2000 ETF (IWM) stock, valuing the stake at $664 million. The iShares Russell 2000 ETF has a potential upside of 14.4% from the consensus price target given by analysts for the exchange-traded fund, according to FactSet. David Dietze, senior investment strategist at Peapack Private Wealth Management, said the ETF is the “easiest way” to invest in small-cap stocks. “The fund has a fairly low expense ratio of 0.19% and is diversified across nearly 2,000 stocks, with no one stock accounting for even half of the fund’s shares. There’s a lot of liquidity, and if small caps are doing well, you’ll get involved. “, he told CNBC Pro. Among stocks, he likes apparel maker VF Corp, which owns brands such as The North Face, Timberland and Vans. “Despite its smaller market capitalization, it designs and distributes its lifestyle products globally,” Dietze said, adding that the stock is up nearly 50% from recent lows despite continued challenges in the retail industry. . Dietze also likes medical device maker Organon, which has been “largely overlooked” but is also up nearly 50% this year. “Its debt may be beyond optimal levels, so OGN could also benefit from easier monetary policy from the Fed,” he added. InfraCap Chief Investment Officer Jay Hatfield is particularly fond of small-cap dividends. He cited two banks: investment bank Jefferies and Kilroy, which owns office real estate in the technology and life sciences industries. Jefferies will benefit from increased M&A activity, while Kilroy will benefit from artificial intelligence trends and back-office tasks, Hatfield said. —CNBC’s Li Yun contributed to this report.
