Small-cap stocks are looking extremely cheap, especially compared with the highflying technology stocks that have dominated the market this year.Not necessarily. Still, some on Wall Street see tantalizing opportunity in this disparity, with at least one veteran analyst crowing about a “once in a generation buying opportunity” in small-caps, mid caps and other unloved corners of the global equity market.
“This trade is going to get more stretched literally up until we have a strong positive Treasury yield curve and Fed rate cuts of 100 basis points,” said Manish Kabra, head of U.S. equity strategy at French bank Société Générale, in an interview. That being said, signs that the Federal Reserve might slash interest rates in 2024 are offering a glimmer of hope for struggling small-caps just as the ratio between the Nasdaq-100 to the Russell 2000 has climbed to a fresh record high as of Wednesday, according to Dow Jones Market Data.
Weakness in the Russell has been widespread among its components, a majority of which are trading in bear-market territory. Of the 1,970 stocks in the index, 72.1% are down 20% or more from their 52-week highs, according to Dow Jones Market Data. According to Colas’ analysis, the Russell 2000 has underperformed the S&P by 19.7 percentage points over the past year, a degree of underperformance that he described as very unusual.
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