{"id":82287,"date":"2023-11-08T18:01:50","date_gmt":"2023-11-08T23:01:50","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/tempted-to-go-bargain-hunting-for-small-cap-stocks-why-you-might-want-to-wait\/"},"modified":"2023-11-08T18:01:55","modified_gmt":"2023-11-08T23:01:55","slug":"tempted-to-go-bargain-hunting-for-small-cap-stocks-why-you-might-want-to-wait","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=82287","title":{"rendered":"Tempted to go bargain-hunting for small-cap stocks? Why you might want to wait."},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0002706882\" role=\"document\">\n<p>Small-cap stocks are looking extremely cheap, especially compared with the highflying technology stocks that have dominated the market this year. <\/p>\n<p>But does that mean it is time for investors to buy? <\/p>\n<p>Not necessarily. Still, some on Wall Street see tantalizing opportunity in this disparity, with at least one veteran analyst crowing about a \u201conce in a generation buying opportunity\u201d in small-caps, mid caps and other unloved corners of the global equity market. <\/p>\n<div class=\"paywall\">\n<p><strong>See: <\/strong>Wall Street veteran sees \u2018once in a generation buying opportunity\u2019 in unloved areas of global stocks<\/p>\n<p>But as the old Wall Street adage goes, just because something is looking cheap, doesn\u2019t mean it can\u2019t get cheaper. Two Wall Street equity strategists who spoke with MarketWatch said that small-caps will likely continue to struggle so long as interest rates at, or near, current levels. <\/p>\n<p>\u201cThis 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,\u201d said Manish Kabra, head of U.S. equity strategy at French bank Soci\u00e9t\u00e9 G\u00e9n\u00e9rale, in an interview.<\/p>\n<p>Perhaps the biggest obstacle facing small-caps is that roughly one-quarter of Russell 2000<br \/>\n        RUT<br \/>\n       constituents are unprofitable. Even those that make money sport margins that are far more modest than their large-cap peers. <\/p>\n<p>\u201cMany of the stocks in the Russell 2000 are marginally profitable, or even unprofitable. It certainly makes sense why you would see better performance from stocks that make money, than not,\u201d said Steve Sosnick, chief market strategist at Interactive Brokers, in a phone interview.<\/p>\n<p>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. <\/p>\n<p>The Russell 2000 logged its best performance since February 2021 last week as stocks soared on hopes that the Fed could start slashing borrowing costs later next year. The small-cap index outperformed the Nasdaq Composite<br \/>\n        COMP<br \/>\n       and S&amp;P 500<br \/>\n        SPX<span>,<\/span><br \/>\n       an increasingly rare occurrence. <\/p>\n<p>Small-caps outperformed the Nasdaq in 2022 as stocks stumbled. But they have largely missed out on this year\u2019s rebound rally. The end result is that the Nasdaq is outperforming the Russell by 32 percentage points so far in 2023, according to David Rosenberg, the former chief North American economist at Merrill Lynch and founder of Rosenberg Research. That is the largest margin of outperformance since 1999, shortly before the peak of the dot-com bubble. <\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>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. <\/p>\n<p>Small-caps\u2019 valuation based on expectations for corporate profits are low. But they have been lower in the not-too-distant past. <\/p>\n<p>The forward price-to-earnings ratio for the S&amp;P 600<br \/>\n        SML<span>,<\/span><br \/>\n       a small-cap index that excludes many of the unprofitable companies included in the Russell, stood at 12 on Wednesday. But it had fallen as low as 8.7 in March 2020, while briefly dipping below seven in November 2008, according to FactSet data. <\/p>\n<p>\u201cThese stocks are cheap, but they are not totally bombed out,\u201d Kabra said.<\/p>\n<p>Nicholas Colas, the co-founder of DataTrek Research, showed that periods of small-cap outperformance have grown less frequent over the past 20 years. <\/p>\n<p>According to Colas\u2019 analysis, the Russell 2000 has underperformed the S&amp;P by 19.7 percentage points over the past year, a degree of underperformance that he described as very unusual. <\/p>\n<p>However, over the past two decades, stretches of S&amp;P 500 dominance have grown more frequent, while the margin of outperformance has grown larger. Colas illustrated this in the chart below. <\/p>\n<div data-layout=\"inline\n                \" data-layout-mobile=\"\" class=\"\n          media-object\n          type-InsetMediaIllustration\n            inline\n  article__inset\n          article__inset--type-InsetMediaIllustration\n            article__inset--inline\n  \"><\/p>\n<p>          <!-- eventually when we know what this card will be we can change it and leave this one --><\/p>\n<figure class=\"\n        media-object-image\n        enlarge-image\n        img-inline\n        article__inset__image\n      \" itemscope=\"\" itemtype=\"http:\/\/schema.org\/ImageObject\"><\/p>\n<\/figure><\/div>\n<p>Colas remains optimistic about the prospect for small-caps to make a comeback, and perhaps outperform big tech and other large-cap stocks. But he recommended that clients hold off for just a little while longer before diving in. <\/p>\n<p>\u201cWe think it is too early to swap into small-caps, however. Year-end looks like a better time to us,\u201d he said. <\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/story\/tempted-to-go-bargain-hunting-for-small-cap-stocks-why-you-might-want-to-wait-70f7b800?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Small-cap stocks are looking extremely cheap, especially compared with the highflying technology stocks that have dominated the market this year. But does that mean it is time for investors to buy? Not necessarily. Still, some on Wall Street see tantalizing opportunity in this disparity, with at least one veteran analyst crowing about a \u201conce in [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":82288,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-82287","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Tempted to go bargain-hunting for small-cap stocks? Why you might want to wait. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Small-cap stocks are looking extremely cheap, especially compared with the highflying technology stocks that have dominated the market this year. 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