Small-Cap Stocks Have Outperformed in 2021 So Far and Have More Room to Run

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Small-cap stocks have outperformed the gains of bigger and more established companies into the new year.

In 2021 alone the Russell 2000, an index of small-cap stocks, has gained 1.5 percent. These smaller companies have had "a tremendous rebound," says James Gowen, chief investment officer at Spouting Rock Asset Management in Pennsylvania. Earnings "really started to come up."

If this trend will continue is the next issue to address. For starters, major indexes are at all-time highs while COVID-19 infections and deaths are surging globally and vaccine rollouts. However, if markets are truly efficient than this has already been priced in and markets are anticipating better days for inoculations and a historic global recovery. Furthermore, investors seem to be bullish that a couple of factors can keep the small-cap surge going.

For starters, Joe Biden's stimulus proposal would aid smaller companies. With a Democratic sweep of Congress and the White House, the $1.9 trillion package could become a reality in the near future. This would help small-cap stocks because they depend more on the health of the economy than the largest indexes, according to Philip Lawlor, head of global investment research at FTSE Russell, which runs the Russell 2000.

Next, investors seem to have brushed off the short-term threats. On Thursday, new jobless claims crept up towards 1 million, the biggest increase since March. However, investors are willing to look past this. In the words of President Franklin Delano Roosevelt, investors believe that "the American people in their righteous might will win through to absolute victory."

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