Jefferies says small caps to top large stocks for the first time in 8 years

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Stock Markets,Russell 2000 Index,S&P 500 Index

Strong earnings growth and a supportive macroeconomic backdrop could help the asset class turn the tide after its 'longest losing streak ever.'

Small caps are about to beat large stocks for the first time in eight years, according to Jefferies. Smaller companies with market capitalizations of about $250 million to $2 billion are attractive to investors as they offer more potential for growth than their large cap peers, but they've underperformed at "extreme levels" relative to large caps over the past decade.

Still, a number of factors have convinced DeSanctis the tide will continue turning in 2025, including a strong earnings growth outlook, attractive valuations relative to large-cap, as well as an easing interest rate environment. "We see the Russell 2000 gaining 13.5%, hitting 2715 by yearend '25, finally beating the large caps after 8 long years of underperformance," DeSanctis wrote on Monday. .

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