Wall Street Calls to watch for the 2024 opening Finally, he joined the stock market rally.
Drastically Underperforming the overall market Small caps surged last week in the first six months of the year. June inflation beat expectations This has increased market optimism about interest rate cuts by the Federal Reserve.
Over the past month, the small-cap Russell 2000^RUT) index is currently up about 10%, well above the 1.4% rise of the S&P 500 over the same period. And the pressing question among Wall Street strategists now is whether the rally has room to continue.
“If rate cuts remain priced in and the Trump 2.0 trade continues ahead of the U.S. presidential election, we think there is room for a continued rotation into lower quality names,” Maxwell Grinacoff, U.S. equity derivatives strategist at UBS Investment Bank, wrote in a client note on Thursday.
Grinakoff added that the key to a continued rise is further containment of inflation and economic data showing the same or higher growth rates.
Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, told Yahoo Finance on Wednesday that the small-cap trend is “likely to continue.” But to Subramanian, that doesn’t mean simply buying the Russell 2000 Index is the right trade.
Subramanian emphasized that roughly a third of the Russell 2000 is unprofitable and that the index as a whole is facing big losses. Increased refinancing risk These are situations where interest rates are higher than indexes like the S&P 500.
“If short-term interest rates have indeed peaked and we are on track to see rate cuts, then as that certainty grows, small-cap companies are likely to start to outperform,” Subramanian said. “Certainly, small-cap valuations are at levels that justify a fairly fair comeback. I think it’s the higher quality groups within small caps that are looking more attractive. So within small caps, industrials and even energy companies, areas that may have more sensitivity to GDP and consumer spending, are going to look more attractive.”
He added that “areas with higher refinancing risk or higher credit sensitivity may still be subject to penalties until the Fed actually starts cutting rates.”
