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Time for a Big Small-Cap Run? Zacks March 2024 Strategy

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The following is an excerpt from Zacks Chief Strategist John Blank’s full Mar Market Strategy report To access the full PDF, click here.

I. Year-end 2024-focused stock traders can look over any short-term headwinds.

The FEB 2024 Federal jobs report was a solid narrative, albeit with a rise to a 3.9% U.S. household unemployment rate.

2025 estimates matter, now. Even 2026!

An S&P500 EPS delivery can happen, in line with strong 2024 and 2025 EPS estimates.

II. Notably, a big value gap exists between U.S. large-cap & small-cap benchmarks.

Applying a 2019 to 2023 timeline, a blue line shows the Russell 2000 (RUT) index value, in absolute terms on the RHS. An orange line shows the Russell 2000’s index value, relative to the S&P500. This metric is tracked on the LHS.


Zacks Investment Research
Image Source: Zacks Investment Research

Zacks sees three small-cap insights. They could foreshadow future index style rotations.

First, the small-cap Russell 2000 growth stock index remains deeply undervalued relative to the S&P500 index, by -29.63%. The RUT annualized return has been +8.91% over the last few years. This is lagging behind the large-cap returns.

At Joe Biden’s Jan. 20th, 2021 inaugural, the Russell 2000 traded ~2,100. On March 2nd, 2024, it was 2,076. We are getting close to that break out level.

Second, a U.S. small-cap consolidation period (a tight trading range) runs to 26 months.

Will we get a strong RUT in 2024? Likely, if real growth narratives stay dominant.

Third, 2.5 years ago, traders did see a short-lived run-up in small-cap land. The broad blended small-cap RUT index peaked on Nov. 8th, 2021 at 2,458.

In conclusion, with a November 2024 Presidential election (with an incumbent) in play, and strong JAN ’24 U.S. stock markets?

Watch for an unpredictable, but possibly explosive, return on Russell 2000 (RUT) stocks.

III. Zacks March 2024 Sector/Industry/Company Telescope

The Feb. 29th, 2024 era Zacks Industry Ranks show a dramatic upgrading rise, with four Very Attractive sectors.

The end to the Q4-23 earnings season clearly played a role, in that sudden shift. Analysts finally made decisive changes to their estimates.

These are the four Very Attractive sectors now: Industrials, Info Tech, Consumer Discretionary and Financials.

At Attractive was Communication Services.

At Market Weight was Health Care (no surprise here) and Materials.

At Unattractive was Utilities.

At Very Unattractive were two sectors: Consumer Staples (surprising!) and Energy sectors.

(1) Industrials stayed at Very Attractive. Metal Fabricating, Industrial Products & Services, Business Products and Pollution Control were strong.

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(2) Info Tech rose to Very Attractive from Attractive. Semis and Software Services led.

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(3) Consumer Discretionary rose to Very Attractive from Market Weight. Non-food Retail, Publishing, Media and Leisure Services look very strong.

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(4) Financials rose to Very Attractive from Market Weight. Insurance stays tops. Now, Investment Banking & Brokering and Finance joined that group.

(5) Communications Services stayed Attractive. Telco Equipment is very strong.

(6) Health Care stayed Market Weight, with Medical Products and Drugs at Market.

(7) Materials stayed Market Weight. Building Products and Paper were strong.

(8) Utilities fell to Unattractive from Very Attractive. Utilities - Water Supply was the solitary leader here.

(9) Consumer Staples fell steeply to Very Unattractive from Attractive. Soap & Cosmetics and Food/Drug Retail are best, but only rate a Market Weight rating.

(10) Energy fell to Very Unattractive from Market Weight. Oil/Gas Pipelines is a sole strong spot.

IV. Conclusion

There are lots of stock trader and covering analyst eyeballs watching for an index style rotation away from the Magnificent 7 stock market leaders?

Will 2024 deliver that widening?

We shall see.

Investigate the interior of my MARCH 2024 Zacks Market Strategy report for a breadth of useful details.

Warm Regards,

John Blank
Zacks Chief Equity Strategist and Economist

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