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.
Small-Cap Opportunity in '24: Watch for These 5 Catalysts
Over the past five years, small-cap stocks and the Russell 2000 Index have underperformed the other major U.S. equity indices. For example, despite the black swan event of the COVID-19 pandemic of 2020 and the volatile and brutal bear market of 2022, the S&P 500 Index ETF has gained an impressive 85% while the tech-heavy Nasdaq 100 Index ETF packed on gains of 147%!
Meanwhile, the Russell 2000 Index continues to be in a long and deep drawdown off its all-time highs and is only up a feeble 37% over the same period. A “hawkish” Federal Reserve monetary policy coupled with outsized exposure to the ailing commercial real estate has caused the dramatic underperformance.
After five years of underperformance, investors are looking elsewhere for performance, piling into tech stocks, and avoiding “throwing good money” after bad. While the small-cap trade may be counterintuitive, five data points suggest that it may provide the most signficant profit potential into year-end, including:
Sentiment: Bet on the “Redheaded Step Child”
Savvy investors find success by zigging while the crowd zags. According to data from B of A,small-cap stocks represent just 3% of active portfolios, half the weight compared to decade ago.
Interest Rate Cuts: Follow the Money, Not Opinions
Last month, Fed Chair Jerome Powell had a surprisingly “dovish” attitude when discussing interest rates, saying that the U.S. central bank is “not from reaching its goal” (2% inflation rate). Despite Powell’s statement, many investors still doubt that the Fed will cut rates in 2024.
Rather than guessing or trusting my gut feeling, I prefer to follow the money. The CME FedWatch Tool calculates probabilities of interest rate moves based on trading in federal funds futures contracts. In other words, what real money is betting on, not opinions. Currently, the FedWatch Tool is pricing in five rate cuts before year-end (and gives a 90+% chance for at least three to occur). Lower interest rates are bullish for small caps because they reduce borrowing costs, stimulate economic activity, and potentially increase profitability for smaller, more growth-oriented companies.
Growth at a Reasonable Price
Russell 2000 stocks are cheaper than S&P 500 stocks from a price-to-book perspective, yet are slated to grow faster in 2024.
Relative Strength & Base Breakout
Over the past month, IWM has exhibited relative strength versus QQQ. With tech stocks like Nvidia up for eleven weeks in a row, now may be the time for some rotation into other market areas. Furthermore, IWM is breaking out of a perfect cup-with-handle base structure. The base structure is part of a more extended base that dates back two years! As the old Wall Street adage goes, “The longer the base, the higher in space.”
Stabilization in Regional Banks & CRE
Time is the ultimate healer. After a group of investors rescued regional bank New York Community Bancorp, there is much less risk in the regional banking space. This observation is important for investors as the small-cap space is heavily weighted toward financials. In addition, the further away Wall Street gets from the pandemic-induced commercial real estate crisis, the less impact it will have on small caps and the general market.
Bottom Line
There are several compelling reasons for investors to reconsider when it comes to small-caps. Federal Reserve policy and poor sentiment are just a few factors that should drive these stocks in 2024.
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, S&P 500 Index ETF, Nasdaq 100 Index ETF, Nvidia and New York Community Bank
For Immediate Release
Chicago, IL – April 1, 2024 – Today, Zacks Investment Ideas feature highlights Russell 2000 Index (IWM - Free Report) , S&P 500 Index ETF (SPY - Free Report) , Nasdaq 100 Index ETF (QQQ - Free Report) , Nvidia (NVDA - Free Report) and New York Community Bancorp (NYCB - Free Report) .
Small-Cap Opportunity in '24: Watch for These 5 Catalysts
Over the past five years, small-cap stocks and the Russell 2000 Index have underperformed the other major U.S. equity indices. For example, despite the black swan event of the COVID-19 pandemic of 2020 and the volatile and brutal bear market of 2022, the S&P 500 Index ETF has gained an impressive 85% while the tech-heavy Nasdaq 100 Index ETF packed on gains of 147%!
Meanwhile, the Russell 2000 Index continues to be in a long and deep drawdown off its all-time highs and is only up a feeble 37% over the same period. A “hawkish” Federal Reserve monetary policy coupled with outsized exposure to the ailing commercial real estate has caused the dramatic underperformance.
After five years of underperformance, investors are looking elsewhere for performance, piling into tech stocks, and avoiding “throwing good money” after bad. While the small-cap trade may be counterintuitive, five data points suggest that it may provide the most signficant profit potential into year-end, including:
Sentiment: Bet on the “Redheaded Step Child”
Savvy investors find success by zigging while the crowd zags. According to data from B of A,small-cap stocks represent just 3% of active portfolios, half the weight compared to decade ago.
Interest Rate Cuts: Follow the Money, Not Opinions
Last month, Fed Chair Jerome Powell had a surprisingly “dovish” attitude when discussing interest rates, saying that the U.S. central bank is “not from reaching its goal” (2% inflation rate). Despite Powell’s statement, many investors still doubt that the Fed will cut rates in 2024.
Rather than guessing or trusting my gut feeling, I prefer to follow the money. The CME FedWatch Tool calculates probabilities of interest rate moves based on trading in federal funds futures contracts. In other words, what real money is betting on, not opinions. Currently, the FedWatch Tool is pricing in five rate cuts before year-end (and gives a 90+% chance for at least three to occur). Lower interest rates are bullish for small caps because they reduce borrowing costs, stimulate economic activity, and potentially increase profitability for smaller, more growth-oriented companies.
Growth at a Reasonable Price
Russell 2000 stocks are cheaper than S&P 500 stocks from a price-to-book perspective, yet are slated to grow faster in 2024.
Relative Strength & Base Breakout
Over the past month, IWM has exhibited relative strength versus QQQ. With tech stocks like Nvidia up for eleven weeks in a row, now may be the time for some rotation into other market areas. Furthermore, IWM is breaking out of a perfect cup-with-handle base structure. The base structure is part of a more extended base that dates back two years! As the old Wall Street adage goes, “The longer the base, the higher in space.”
Stabilization in Regional Banks & CRE
Time is the ultimate healer. After a group of investors rescued regional bank New York Community Bancorp, there is much less risk in the regional banking space. This observation is important for investors as the small-cap space is heavily weighted toward financials. In addition, the further away Wall Street gets from the pandemic-induced commercial real estate crisis, the less impact it will have on small caps and the general market.
Bottom Line
There are several compelling reasons for investors to reconsider when it comes to small-caps. Federal Reserve policy and poor sentiment are just a few factors that should drive these stocks in 2024.
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.