We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Zacks Investment Ideas feature highlights: Russell 2000 Index ETF and Super Micro Computer
Read MoreHide Full Article
For Immediate Release
Chicago, IL – March 4, 2024 – Today, Zacks Investment Ideas feature highlights Russell 2000 Index ETF (IWM - Free Report) and Super Micro Computer (SMCI - Free Report) .
Small but Mighty: Is the Russell 2000 Signaling a Comeback?
Small Caps and the Russell 2000 Index ETF have lagged behind their large-cap counterparts for years. However, signs are emerging that that is likely to change. Below are the reasons why:
Inflation & Interest Rate Concerns are Subsiding
Due to their inherent characteristics, small-cap stocks are often more sensitive to inflation and interest rates. Smaller companies usually have limited resources, making them more vulnerable to rising operating costs during inflationary periods. Additionally, these firms face challenges adjusting product prices quickly to offset inflationary pressures.
When inflation increases, the Federal Reserve raises interest rates to deal with it. Rising interest rates can adversely impact small caps as borrowing costs increase, squeezing their profit margins and making it more challenging for them to access capital. The combination of increased operating costs, perceived risk, and higher borrowing expenses has weighed on small caps over the past few years, but that appears to be changing.
Yesterday morning, Core PCE (the U.S. Fed’s preferred measure of inflation) decreased to 2.8% in January, the lowest inflation rate since March 2021. Markets are now pricing in three interest rate cuts in 2024. A lower Fed Funds Rate is a bullish catalyst for small-cap stocks.
Earnings are Turning the Corner
Until the back half of 2023, the Russell 2000’s earnings growth declined for four straight quarters. However, in Q3 and Q4 2024, they rebounded strongly, and Zacks Consensus Earnings Estimates suggest that the positive momentum will continue. The Russell’s year-over-year earnings are expected to grow a healthy 10% in 2024 and a robust 41% in 2025! Remember, markets tend to discount future earnings growth in advance.
Price Action
Multi-time frame analysis
Mutti-timeframe analysis is an investment approach technicians use to simultaneously examine an asset across different time intervals. The idea behind MTFA is that the more timeframes you combine, the more well-rounded the technical assessment of an asset’s price action is and the higher the odds the trade works. Below is a daily and weekly comparison of the Russell 2000 Index ETF as an example. The index also threatens to break out on the quarterly and yearly timeframes – a bullish sign.
Change of Character
The 10-week moving average is the best proxy for the intermediate trend in stocks and ETFs. Unlike 2023, IWM is finding buying support at its 10-week moving average.
The Longer the Base, The Higher in Space?
Super Micro Computer and several other stocks proved that long base breakouts produce some of the most robust uptrends. IWM is attempting to break out of a base structure that dates all the way back to April 2022.
Cash Rich
Despite the tumultuous performance over the past few years, small caps are cash-rich. The Russell 2000’s Net Cash / Market Cap Ratio is at decade highs, signaling fundamental strength in small caps.
Bottom Line
Factors such as subsiding inflation and interest rate concerns, a turnaround in earnings growth, positive price action, as well as the cash-rich status of small caps, all contribute to a potential resurgence in small caps.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Zacks Investment Ideas feature highlights: Russell 2000 Index ETF and Super Micro Computer
For Immediate Release
Chicago, IL – March 4, 2024 – Today, Zacks Investment Ideas feature highlights Russell 2000 Index ETF (IWM - Free Report) and Super Micro Computer (SMCI - Free Report) .
Small but Mighty: Is the Russell 2000 Signaling a Comeback?
Small Caps and the Russell 2000 Index ETF have lagged behind their large-cap counterparts for years. However, signs are emerging that that is likely to change. Below are the reasons why:
Inflation & Interest Rate Concerns are Subsiding
Due to their inherent characteristics, small-cap stocks are often more sensitive to inflation and interest rates. Smaller companies usually have limited resources, making them more vulnerable to rising operating costs during inflationary periods. Additionally, these firms face challenges adjusting product prices quickly to offset inflationary pressures.
When inflation increases, the Federal Reserve raises interest rates to deal with it. Rising interest rates can adversely impact small caps as borrowing costs increase, squeezing their profit margins and making it more challenging for them to access capital. The combination of increased operating costs, perceived risk, and higher borrowing expenses has weighed on small caps over the past few years, but that appears to be changing.
Yesterday morning, Core PCE (the U.S. Fed’s preferred measure of inflation) decreased to 2.8% in January, the lowest inflation rate since March 2021. Markets are now pricing in three interest rate cuts in 2024. A lower Fed Funds Rate is a bullish catalyst for small-cap stocks.
Earnings are Turning the Corner
Until the back half of 2023, the Russell 2000’s earnings growth declined for four straight quarters. However, in Q3 and Q4 2024, they rebounded strongly, and Zacks Consensus Earnings Estimates suggest that the positive momentum will continue. The Russell’s year-over-year earnings are expected to grow a healthy 10% in 2024 and a robust 41% in 2025! Remember, markets tend to discount future earnings growth in advance.
Price Action
Multi-time frame analysis
Mutti-timeframe analysis is an investment approach technicians use to simultaneously examine an asset across different time intervals. The idea behind MTFA is that the more timeframes you combine, the more well-rounded the technical assessment of an asset’s price action is and the higher the odds the trade works. Below is a daily and weekly comparison of the Russell 2000 Index ETF as an example. The index also threatens to break out on the quarterly and yearly timeframes – a bullish sign.
Change of Character
The 10-week moving average is the best proxy for the intermediate trend in stocks and ETFs. Unlike 2023, IWM is finding buying support at its 10-week moving average.
The Longer the Base, The Higher in Space?
Super Micro Computer and several other stocks proved that long base breakouts produce some of the most robust uptrends. IWM is attempting to break out of a base structure that dates all the way back to April 2022.
Cash Rich
Despite the tumultuous performance over the past few years, small caps are cash-rich. The Russell 2000’s Net Cash / Market Cap Ratio is at decade highs, signaling fundamental strength in small caps.
Bottom Line
Factors such as subsiding inflation and interest rate concerns, a turnaround in earnings growth, positive price action, as well as the cash-rich status of small caps, all contribute to a potential resurgence in small caps.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.