The inflows into small-cap stocks may not be a rotation from winning growth stock trades.
ETF journalist and financial futurist Dave Nadig sees investors as “just buying, buying, buying.”
“What we’re seeing is a diversification deal,” he said in an interview with CNBC.ETF Edge“There’s been money flowing into everything this week, which I think means people are looking to broaden their investment horizons a little bit, which is smart in an election year.”
Nadig argues that expanding portfolio exposure can help absorb volatility in the months leading up to the presidential election.
“[Investors] “Investors are now buying value stocks, defensive sectors and small caps for the first time in a while, but they’re not stopping to buy other stocks,” he said. “I think this is money coming from what we know is a lot of money markets.”
When it comes to small-cap trading, Nadig believes it’s too early to tell whether the rally is sustainable.
“If the small-cap rally continues — if we get two or three months of small caps of all kinds clearly outperforming larger caps — you’re going to see a ton of money chasing that performance, which is what happens all the time,” Nadig said.
“If what we’re seeing is simply re-diversification deals, then we would expect this to be somewhat volatile for the rest of the year,” he added.
of Russell 2000The index tracking small-cap stocks fell 0.6% on Friday. But it of Dow Jones Industrial Average, S&P 500 And that Nasdaq Composite IndexAdditionally, the Russell 2000 has continued its upward trajectory, gaining nearly 2% this week. The index is up about 8% over the past month, but has been roughly flat since President Joe Biden took office in January 2021.
Anna Paglia, who develops global ETF strategies at State Street Global Advisors, believes hopes of interest rate cuts will be the catalyst for strength among the sector’s laggards.
“Investors are really getting comfortable with risk and we’re going to see momentum,” said Mr. Paglia, the firm’s chief operating officer.
But she doesn’t think investors turn to money market accounts because people need cash for some reason.
“It’s mostly fixed assets. I don’t see a big wave of investors pulling out of money market funds and into the stock market or ETFs,” he said.
