The Russell 2000 index has been making headlines with its impressive performance, outpacing its large-cap counterparts and leaving investors in awe. In a market where large-cap stocks have long been the dominant force, small-caps are now closing the gap at full speed, catching up to their tiring competitors.
In July alone, the Russell 2000 index surged by over 9%, leaving the S&P 500 in the dust. This remarkable performance can be attributed to a more favorable interest rate outlook and easing inflation, boosting investor confidence in small-cap stocks. Nicholas Galluccio, portfolio manager at Teton Westwood, noted that this breakout signals the return of rational investors to the markets.
Small-cap stocks have a history of outperforming large-cap stocks, as shown by the Fama French 3-factor model. Despite a challenging past decade for small caps, experts like Mike Rode of American Century Investments anticipate a cyclical outperformance for small caps in the next 12 to 24 months, with some even predicting this trend could last up to three years.
The onshoring of supply chains amid rising geopolitical tensions has also fueled the small-cap rally, with companies involved in domestic projects expected to benefit. Examples include construction companies like Summit Materials and wafer-handling companies like Cohu, which are seen as promising investments despite recent challenges.
As the Russell 2000 continues to outperform its large-cap counterparts, investors may be wondering if small-cap stocks are the new champions in the stock market Olympics. With recent performance trends and favorable economic factors, small caps may indeed have a competitive edge in the market.
The race continues as the Russell 2000 index surges towards the top step of the stock market podium, showcasing the resilience and potential of growth companies, especially small-cap stocks. It will be interesting to see if small-caps can maintain their lead and secure a lasting victory in the ever-evolving market landscape.
