Smaller, lesser-known U.S. stocks have been basking in a lot of attention this week after they out-rallied major benchmarks. What will it take to keep the gains coming?gains don’t have to be driven by Big Tech and huge multinationals.
Small-capitalization stocks outperformed the large-cap S&P 500 and the tech-dominated Nasdaq Composite Index, which essentially stagnated over the five-day period. And when tech stocks slumped on Wednesday and Thursday, small caps retreated far less. The reading bolstered confidence that the U.S. Federal Reserve could start to cut its key interest rate in September. This is particularly helpful to small companies because they tend to have more exposure to floating-rate debt and higher borrowing costs.
The iShares Russell 2000 ETF , an exchange-traded fund that tracks the small-cap index, providing one-stop shopping for investors, rallied 117 per cent over the following 12 months. It beat the S&P 500 by nearly 55 percentage points over this period, according to data from S&P Global Market Intelligence.
Ms. Hall at Bank of America noted earlier this year that low valuations should help drive 9-per-cent annualized returns for the Russell 2000 over the next decade. That’s a lot better than expected annualized gains of just 2 per cent for expensive large-cap stocks.For one thing, there is a lot of competition for investor attention right now, which could thwart an all-out rotation into small-cap stocks.
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