Small 'n Furious. Early 2020's Signaling A Big Midcap Run Ahead
The Russell 2000 trailed the S&P 500 significantly in 2023, gaining about 17% compared to a gain of about 24% for the large cap index. That underperformance has spilled over into 2024. Year-to-date, the Russell 2000 is about 2% compared to a 7% gain in the S&P 500.
By the way, that valuation measures make the small cap Russell 2000 index much more compelling when compared to the S&P 500.
Small caps relative to the S&P 500 on a price-to-book basis is back to where it was in 1999, which was the absolute low and was a launch point of 12 years of outperformance for small caps.
As of January 31, 2024 small caps price-to-book ratio is 2.01, as it described on FTSE Russell 2000 Index Factsheet.
Like a sensationally increased shares of Supermicro
SMCI
or e.l.f. Beauty Inc
ELF
, I believe many other small cap stocks can be the best ideas for 2024, in part because of that participation in the ongoing stock market rally is improving and is no longer concentrated in just ultra-mega-cap tech stocks, like it was in 2023.
If so-called breadth improves in the stock market, then small cap stocks will catch a bid.
There are three factors will help to boost small-cap stocks in 2024.
First, fund flows into the stock market are necessary for small cap stocks to outperform. If retail funds aren't flowing into the stock market, then funds likely aren't flowing into small cap stocks.
That have changed already in late 2023 as investors start to warm up the stock market.
To be clear, let's take a look at lower technical graph, so-called "AUM", or
IWM
assets under management chart, that is one of the most important ETFs metrics. While it's been correlated pretty well with IWM price action over the past two years, last December has changed the rule, as managed assets smartly jumped to almost historical highs.
Second, small cap stocks are highly levered and tend to have a higher cost of capital, so a decline or no more hikes in interest rates should benefit small cap stocks much more than large cap stocks.
To be clear, let's compare two graphs: for actual U.S. Interest Rate and Expected on Dec, 2024 Interest Rate.
Finally, an expansion in economic growth could be a "huge tailwind" for small cap stocks as they are highly exposed to the domestic economy.
An overlooked area of the stock market is set to soar in 2024 after significantly underperforming the S&P 500 last year.
In technical terms,
IWM
graph is near to break its 52- and 104-weeks highs, to deliver the price 50 percent higher after a breakthrough, like it did it before, on the hottest ever edge of 2020 and 2021.
By the way, that valuation measures make the small cap Russell 2000 index much more compelling when compared to the S&P 500.
Small caps relative to the S&P 500 on a price-to-book basis is back to where it was in 1999, which was the absolute low and was a launch point of 12 years of outperformance for small caps.
As of January 31, 2024 small caps price-to-book ratio is 2.01, as it described on FTSE Russell 2000 Index Factsheet.
Like a sensationally increased shares of Supermicro
SMCI
or e.l.f. Beauty Inc
ELF
, I believe many other small cap stocks can be the best ideas for 2024, in part because of that participation in the ongoing stock market rally is improving and is no longer concentrated in just ultra-mega-cap tech stocks, like it was in 2023. If so-called breadth improves in the stock market, then small cap stocks will catch a bid.
There are three factors will help to boost small-cap stocks in 2024.
First, fund flows into the stock market are necessary for small cap stocks to outperform. If retail funds aren't flowing into the stock market, then funds likely aren't flowing into small cap stocks.
That have changed already in late 2023 as investors start to warm up the stock market.
To be clear, let's take a look at lower technical graph, so-called "AUM", or
IWM
assets under management chart, that is one of the most important ETFs metrics. While it's been correlated pretty well with IWM price action over the past two years, last December has changed the rule, as managed assets smartly jumped to almost historical highs. Second, small cap stocks are highly levered and tend to have a higher cost of capital, so a decline or no more hikes in interest rates should benefit small cap stocks much more than large cap stocks.
To be clear, let's compare two graphs: for actual U.S. Interest Rate and Expected on Dec, 2024 Interest Rate.
Finally, an expansion in economic growth could be a "huge tailwind" for small cap stocks as they are highly exposed to the domestic economy.
An overlooked area of the stock market is set to soar in 2024 after significantly underperforming the S&P 500 last year.
In technical terms,
IWM
graph is near to break its 52- and 104-weeks highs, to deliver the price 50 percent higher after a breakthrough, like it did it before, on the hottest ever edge of 2020 and 2021.