The bull case for small company stocks is still intact for many investors as they head into the back half of 2024 after a lackluster six months. Small-capitalization stocks were widely expected to outperform this year — the group typically does well in a presidential election year — and it was thought would get a boost from reduced borrowing costs when the Federal Reserve started lowering interest rates. Instead, those hopes have been dashed.
According to consensus estimates from bottoms up analysts, small-caps are set to post a double-digit earnings decline of 12.4%, while the S & P 500 is expected to see 9% earnings growth. In recent years, small caps already have a history of beating expectations in earnings, the strategist noted, but what could additionally help the companies now are capital ratios and cash levels that are slightly higher relative to their history.
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